Should we diversify our charitable giving?

Citing Steve Landsburg, Tim Harford argues:

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.

We can think of charitable projects, at least in ex ante terms, as aligned along a continuum of expected returns.  The highest-return project is just a wee bit better than the runner-up candidate.  In that setting, it is hard, as always, to evaluate the efficiency consequences of differing distributions of wealth.  But in a Rawlsian sense — what would a poor person want if he did not know which group he would end up assigned to? — the poor would prefer that any particular gift is diversified.  Even if the dollar rate of return falls by a small amount, the insurance value of that giving rises. 

Keep in mind that a single donation is itself supporting a bundle of projects, not a single giving opportunity.  (What would a truly specialized donation look like?)

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.


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