Here is Tyler summarizing the principles of charitable giving:
1. Cash is often the best form of aid.
2. Give to those who are not expecting it, and,
3. Don’t require the recipients to do anything costly to get the money.
A new charity is formalizing Tyler’s system and reducing the transaction cost of efficient donation. GiveDirectly takes donations over the web, locates poor households in Kenya using people on the ground, and then transfers money directly to the recipient’s cell phone (even very poor households typically have cell phones but GiveDirectly provides SIM cards for those who do not.) Transactions costs are low, just 10%.
You will not be surprised to learn that the CEO and founders and are all economists (one MBA/MPA). All the founders also have extensive experience in development. A randomized control trial is under way to evaluate the program.
Transfers, following point #3, are unconditional. The founders write:
GiveDirectly intentionally provides unconditional, rather than conditional, cash transfers. We do this for three reasons. First, empowering the poor to make their own decisions advances our core value of respect. Second, it lets recipients purchase the things they need most, enhancing impact. Third, imposing conditions on the use of funds requires that costly monitoring and enforcement structures be put in place. One detailed estimate put the administrative costs of a conditional cash transfer scheme at 63% of the transfers made over the first three years of the program (Caldes & Maluccio 2005).
Points one and three are excellent. The second point is a bit disengenous, yes it lets recipients purchase they things they need but it also lets recipients purchase alcohol, cigarettes and prostitutes. Even in poor countries, a substantial amount of poverty is caused by poor choices. Still, there is no special reason to think that cash grants will increase the proportion of money spent on “bad goods.” Cash grants could even reduce bad-goods spending. Some people drink to escape depressing circumstances, for example, so if you make things less depressing, drinking can fall. Moreover, even if you give people housing, health care, or food (stamps!) it’s not so easy to get around bad-goods spending because money is fungible. Thus, I have no problem with donating cash.
Indeed, Tyler and I wish to encourage experimentation in charity and we have therefore made a donation to GiveDirectly.
Addendum: Givewell, our favorite charity evaluator, says GiveDirectly is too new to evaluate but they like the idea and they note that GiveDirectly has been unusually forthright in providing them with advance plans on evaluation.