Tuesday, October 17, 2006

Optimal Charitable Giving Strategies

Tim Harford has an article in Slate that talks about the economics of charitable giving. The part that I think is most interesting is when he argues that we should give only to one cause to maximize the effectiveness of our charitable giving. Here is his explanation:

Even the way we choose to dole out cash betrays our true motives. Someone with $100 to give away and a world full of worthy causes should choose the worthiest and write the check. We don't. Instead, we give $5 for a LiveStrong bracelet, pledge $25 to Save the Children, another $25 to AIDS research, and so on. But $25 is not going to find a cure for AIDS. Either it's the best cause and deserves the entire $100, or it's not and some other cause does. The scattershot approach simply proves that we're more interested in feeling good than doing good.

Many people are unconvinced by this argument—which I owe to Steven Landsburg—because they are used to diversifying their financial investments (a bit of Google stock and a bit of Exxon, too) and varying their choices (vanilla ice cream AND bananas). But those instincts are selfish: They are not intended to benefit both Google and Exxon, nor both the ice-cream company and the banana growers. With charity, the logic is different, and a truly selfless donor would bite the bullet and put his entire donation behind one cause. That we find that so hard to imagine is just one more indication of how hard it is for us to think ourselves into a truly selfless view of the world.

None of this is to say that these contributions are worthless or economically insignificant. Just don't get too starry-eyed about the motives behind them.

Economist Tyler Cowen discusses this article and gives another argument for giving to only one charity:
I agree with Harford's point in a different regard. The fixed costs of processing a donation are relatively high, if only because the charity will send further letters asking for more money. For that reason it may be better to focus our giving on a single charity.
What do you think? If you had $1,000 to give, what strategy would yield the biggest impact?

(Source: Marginal Revolution)


Anonymous said...

For this issue, i believe that Steven Landsburg has a point. Since we invest our money into many different stocks to maximize total profit, why should we do any different with charities. I disagree with the idea that spreading one's money over many different charities is selfish...it is a donation, isnt it? All donating is (or at least should be) purely altruistic, alotting all that money to another cause. I do not believe that giving money to many charities is at all wrong or "uneconomical" as these people are acting through rational self-interest...they are doing what they think is correct regarding the situation. If everyone supported many different causes, then the overall effectivness of the donated money would probably even out anyways. If i had $1000, i would give the bulk of the money to a the ACS, but i would also allocate some funds to other smaller funds, such as the Brad Koster Fund. I support many different and important causes, so i want to share my personal resources with many different groups and organziations that merit an important cause. It is not because i am selfish or feel better about giving $10 to each charity than $1000 to just one, rather i feel many different causes deserve recongition and support.

Anonymous said...

I agree with Alena and think that giving to charities is always effective whether you are giving to 1 charity or 10. I do not think the way people decide to give out their money is selfish, as long as they are giving it out. If you have two causes which you think are equally worthy, you should split the money between them instead of trying to pick one. If everyone had to pick only one charity to give to, I think that many of the charities would not be receiving any money and some of the causes would have to be forgotten. I disagree with Harford when he says, “the scattershot approach simply proves that we're more interested in feeling good than doing good.” Giving to more than one charity does not make you feel better because you are still giving out the same amount of money and should be getting the same amount of satisfaction. Clearly, people are not more interested in feeling good than doing good, because if they just wanted to feel good they would probably go on a vacation or buy something nice for themselves instead of trying to help others. In addition, I think that people should be giving out their money based on what makes them feel good, which would normally be supporting causes that they felt the most strongly about. Who cares how many charities you are giving to, as long as the money is going to a good cause? And how can you question the motives of people who are donating their money? If I had $1,000 to give away, I would probably have to end up giving it to about five charities. I have so many causes that I feel are worthy and it would be hard to narrow them down. I’m pretty sure the charities aren’t complaining about diversification of giving because they are just happy to be getting donations. I don’t think it is a good idea for people to try to advise others on the most economic strategy for giving and everyone should just do what they feel is best.

Anonymous said...

I agree with both Alena and Natalie and I think that he fails to realize that if everyone gave to only the charity they see as most important, there would probably be a number of charities that must drop out completely. If you are well informed about the various types of charities that are out there, chances are someone is going to give to the American Cancer Society over the Save the Whales foundation. If you were forced to pick one and only one that meant the most to you, I would assume that the givers would see that people dying from cancer need the support more than the whales do. And as Natalie said, how can you choose what group is more important? If the charities they're saving lives or positively impacting the less fortunate, how are you supposed to judge what group of peoples lives are more important than anothers? (ie: cancer vs aids vs children in africa...etc...)

Anonymous said...

I think that giving the money to multiple charities is better because not only does it make you feel better but it also gets the money out there. I would prefer to give to many charities because then if they were successful i could say that i contributed to that success. This personal benefit that i gain could in turn lead me to continue to give money to charities in the future whereas if i gave all $1000 to one che charity such as one to cure AIDs and no cure to AIDs was found then i would be less likely to continue donating money to this cause.
- chris getz

Anonymous said...

I have a different opinion. If charities didn't receive enough funds to survive with everyone only donating to one, they probably would be somehow for a less important cause than the other charites. You can say all you want that all charities deserve to get donations, but at some point the marginal utility of donating to one charity has to outweigh donating to another, probably because the need is percieved as less urgent or does not ellicit the same amount of sympathy. With a limited amount of funds, a choice has to be made.
In response to Alena's assertion that money should be spread over many charities, I say that this method would result in far less revenue and net gain for all charities in general. Because donations involve some kind of fixed cost for processing, some money from each donation is lost. The best way to combat this would be to make the fixed cost as small of a portion of the donation as possible by donating a large amount to a single charity. If everyone only donated to one charity with all the funds they usually donate, the overall gain by all charities in general would be much greater, and, in turn, so would the overall good done by charitable organizations.
-Jordan Croom

Anonymous said...

I have to agree with Croom that people should invest all their money into one charity, whichever one that is that they support the greatest. If everyone saw curing cancer as the best use of their charitable donation, and gave all their money to these types of institutions, it might be possible that the ability to cure cancer will come about quicker. This is double edged though because if everyone supports the same charity, or gives all their money to one charity, there are other charities that recieve no money at all, which might make some individuals uncomfortable. This is probably why people usually give to more than one charity, they feel like they are doing a greater good.
- james c