We are Ignorant Philanthropists

Have you ever been called a moron for not giving money to the most starving child? Ever been ridiculed for buying orphans new toys instead of funding a food drive for sick children in Africa? Of course you haven’t, it is a rather taboo subject to bring up in the first place. How do we know if the resources we budget for charity are being allocated in the most efficient way possible? Americans gave nearly $300 billion to charitable causes last year; what if half of that could have been allotted more efficiently?

Have you ever had your dad scream at you for tampering with the thermostat? Ever been ridiculed for buying overpriced shoes? It is clear that our society values economic efficiency. Don’t get this confused with ‘being cheap,’ because you can be cheap and inefficient simultaneously. Efficient resource allocation is important for the rational consumer. This is why we strive to close the information gap between the seller and the buyer. With consumer reports, reviews, and evaluations, we can make better-informed decisions on our purchases. Being rational consumers, we will only choose to buy what has more ‘bang for its buck,’ the layman’s term for utility maximization. This diffusion of product information translates to an economically efficient future. What about charity? Are we informed philanthropist?

More specifically, what does it mean to have more ‘bang for you buck’ in regard to charity? Does it have to do with which recipient benefits the most out of your X dollar amount donation? Examining the behavior of charitable donations, we find out that this isn’t the case. When it comes to charity, people are not informed consumers.

Which person would you rather give your spare change to; assuming it is less than a dollar?


Starving African Kids Witty Homeless guy

If you did not pick the witty homeless guy, have ever given a homeless guy your spare change? If the answer is no, at least you know someone who has and that is sufficient enough for me to make my point. Now, there are certain reasons you or someone you know gave their change to the homeless guy instead of poor African children. For one, the homeless guy was conveniently there to take your money. Also, you might catch a glimpse of glee in his face as he takes your generous donation. In my opinion, these reasons are excuses for not having the information to donate where you will optimize your ‘bang for your buck.’

You shouldn’t feel guilty if you have these excuses for not donating to the ‘right’ people. Unlike the consumer markets, the charity market is saturated with false information and manipulation. There are a plethora of lobbyists out there that trick people into putting their charity budget in the wrong place. Similarly, there are plenty of religious institutions that do just the same. Your efforts to do your own research might be at too high of a cost.

Even some of the most benevolent deeds, like working at the local food shelter, could be a misallocation of time and money. It all depends on the supply and demand of charitable donations. The food shelter could be substantially lacking staff and your help will have a huge marginal benefit. On the other hand, suppose the food shelter was over staffed, but you decide to help out anyway. Your marginal benefit wouldn’t be worth your effort. This misallocation of charity will continue to be a problem as long as it’s taboo to bring up the topic. There needs to be some sort of way to have objective charitable information readily available for the public.