The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it). Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.” Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.
Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios
Administrative expenses tell you nothing about if the charity’s work actually does anything, or if it does, how much good it does. The proper question to ask should be “for every $1 I give, how much good is generated?” and not care about how the sausage is made. Different organizations might have different business models, and two organizations might approach the same problem, say clean water in poor villages from two different approaches – perhaps digging new wells versus cleaning existing water sources. Don’t ask who spends less on expenses like copier toner and legal costs, ask which organization will get clean water to the most people with your money. I went into this in more detail in a post a while ago, and when I compared charities’ ranks on a site that rank using overhead ratios, to a site that does thorough research on effectiveness, organizations that were rated as more effective also tended to have slightly higher expense ratios. Read More »
December is the holiday giving season for many, but there are a lot of charities competing for your dollars, and it can be hard to know where they will do the most good.
I’ve written before about why you should be wary of sites that rank charities by administrative expenses. It tells you nothing about if the actual effectiveness of a charity’s activities. The recent Freakonomics Radio episode “Free-conomics” also pointed out that many charities themselves don’t even know if what they’re doing actually works. This was one of the reasons I founded a non-profit which carries out research around the world to find out exactly which efforts to fight poverty work best.
As well as choosing which charities to support, we also make choices about how we support them. Often overlooked, this choice can be just as important in influencing what our money actually achieves. Below, two experts in philanthropy, Caroline Fiennes and Phil Buchanan, explain one crucial effect of how we give. Fiennes is the founder of Giving Evidence and the author of It Ain’t What You Give, It’s the Way That You Give It: Making Charitable Donations That Get Results. Phil Buchanan is president of the Center for Effective Philanthropy. Read More »
Our latest Freakonomics Radio on Marketplace podcast is called “Free-conomics.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)
The gist: economists are a notoriously self-interested bunch, but a British outfit called Pro Bono Economics is giving away its services to selected charities. Martin Brookes is one of its founders:
BROOKES: When we first set up Pro Bono Economics, there were some economists who thought it was wrong, in principle, to give a service to charity for free. That if the service of analysis of their data was valuable, they should have to pay for it.
If the supply side was reluctant, so was the demand side: Read More »
New research indicates that people may be more likely to lie when a charity benefits from their dishonesty. A group of researchers led by Alan Lewis at University of Bath investigated this in their paper “Drawing the line somewhere: An experimental study of moral compromise” (ungated here). From the paper’s abstract:
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In a study by Shalvi, Dana, Handgraaf, and De Dreu (2011) it was convincingly demonstrated that psychologically, the distinction between right and wrong is not discrete, rather it is a continuous distribution of relative ‘rightness’ and ‘wrongness’. Using the ‘die-under-the-cup’ paradigm participants over-reported high numbers on the roll of a die when there were financial incentives to do so and no chance of detection for lying. Participants generally did not maximise income, instead making moral compromises.
Here now is a new List paper, co-authored with Stefano DellaVigna and Ulrike Malmendier, published in the Quarterly Journal of Economics, called “Testing for Altruism and Social Pressure in Charitable Giving.” Read More »
We recently ran on a post on a reader’s query about the economics of a 50-50 fund-raiser. John List, the University of Chicago economics-of-charity wizard (related podcast here), wrote in with a comment:
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The intuition of the reader is slightly off. Although not directly a 50-50 charity drive, we have explored the efficacy of lotteries both theoretically and empirically. As John Morgan (from Berkeley) has elegantly shown, under standard assumptions (no risk-loving or lottery-loving behavior is necessary), lotteries outperform the simple ask (what we call a VCM). Lotteries obtain higher levels of public-goods provision than a voluntary contributions mechanism (VCM) because the lottery rules introduce additional private benefits from contributing.
Close your eyes. Imagine what it would feel like to run a marathon. Now imagine that you’ve run not just one marathon, but two marathons in a single day. Seems crazy. Now imagine you’ve run two marathons in a day, every day, for 10 months straight without a day off!
Meet Pat Farmer. He’s an ultramarathoner from Australia who is in the process of running from the North Pole to the South Pole. He covers 50 miles a day, except when he is using snow shoes near the poles. He only manages 16 miles a day in snow shoes. Read More »
Our recent podcast “What Makes a Donor Donate?” features economist John List, who has concentrated his research on the science of philanthropy. In short, when it comes to convincing people to give, some ways are better than others. But what about just directly asking them?
A new study from authors James Andreoni, Justin M. Rao, and Hannah Trachtman examines the way people behave when solicited for donations by bell-ringers from the Salvation Army Red Kettle Campaign. The authors designed an experiment where bell-ringers were sent to a grocery store in suburban Boston, and positioned at either one or both of the store’s entrances. Read More »