Indonesia | Economics

Monday, October 16, 2006

On the economics of charity

I once made my case against giving to beggars implicitly suggesting that, for the most part, our gift was mainly to make ourselves feel good. Well, last week, Tim Harford in his Undercover Economist article described briefly how a recent research supported this suggestion:
...If people really were altruistic, there would be much less volunteering.

This isn't some silly tautology. If these do-gooders really were motivated by the desire to do good, they would be doing something different. It would almost always be more effective to volunteer less, work overtime, and give more. A Dutch banker can pay for a lot of soup-kitchen chefs and servers with a couple of hours' worth of his salary, but that wouldn't provide the same feel-good buzz as ladling out stew himself, would it?

In fact, the closer you look at charitable giving, the less charitable it appears to be. A recent experiment by John List, an economist at the University of Chicago, and a team of colleagues, showed that donations are less than magnanimous after all. Using controlled trials to compare different methods of door-to-door fund-raising, professor List's team discovered that it was much more effective to raise funds by selling lottery tickets than it was to raise funds by asking for money. This hardly suggests a world populated by altruists seeking to do the maximum good with their charitable cash.

More effective still was simply to make sure that the fund-raisers were attractive white girls rather than a dowdier assortment of males and females representing all shapes, races, and sizes. This dramatically increased the average contribution, because many more men decided to give money. Altruism?

But there is more... In my blog against giving to beggars, I ended up arguing:
To really help the poor, you really have to want to help the poor – there is no such thing as a free lunch. Which is to say, instead of exchanging guilt with Rp.5,000 a day, perhaps save those Rp.5,000 and each month, give it to an organization that can channel your money to the poor in an accountable manner.

Guess what? This Steven Landsburg article (which I didn't know exist until it was pointed out by Harford) pointed out why the above strategy is a better charity strategy. More precisely, Landsburg suggested why charity diversification is, well, selfish...:
I think I know [why people diversify their charity]. You give to charity because you care about the recipients, or you give to charity because it makes you feel good to give. If you care about the recipients, you'll pick the worthiest and "bullet" (concentrate) your efforts. But if you care about your own sense of satisfaction, you'll enjoy pointing to 10 different charities and saying, "I gave to all those!"

Economists can be a party-pooper sometimes. But, hey, at least, they are honest.

Update (17/10): But why, oh why, do we give? Last week's The Economist elaborated the neurology of charity and why it feels good to give.

2 Comments:

  • I think begging is one of the hardest jobs in the world. They have little or no capital, and have to work hard to get enough money to survive.

    Charity as a whole can create distorting incentives, but they are there in the first place /because/ of market failings.

    Charity can often be "selfish". I remember the ulterior motives mooted of the US Navy helping out in Aceh, Christian charities in RI also...

    There comes a point where if someone gets helped out (for whatever reason) that is basically a good thing in itself! (the motives are largely secondary)

    By Blogger johnorford, at 10/30/2006 07:25:00 am  

  • John,
    I think I'll find begging very hard as well, but I suspect that's my middle-class bias talking. I can imagine Paris Hilton saying the same thing about 9-to-5 jobs ;-).

    Agree completely on your last point -- but only when it helps those who really need helping.

    By Blogger Arya, at 10/30/2006 05:22:00 pm  

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