Thinking About Charitable Giving

The Wall Street Journal this morning has a fascinating article about a group, Give Well, that attempts to evaluate which charities give the most good (e.g. saved lives) for the buck. As you might expect, they determine that particular interventions in the third world provide the best return on the charitable investment:

GiveWell sits at the center of a small but growing movement in philanthropy, what you might call "evidence-based giving," which is particularly in vogue among tech millionaires and billionaires. In addition to praise from economists and those in the traditional philanthropic world, GiveWell has earned accolades from tech types. Its largest funder is Good Ventures, the foundation created by Facebook co-founder Dustin Moskovitz and his wife, Cari Tuna, a former Wall Street Journal reporter who now runs the foundation. In its philosophical outlook, GiveWell also has much in common with other tech-funded philanthropies, including Pierre Omidyar's , Jeff Skoll's and especially Bill Gates's. Indeed, GiveWell recently moved its headquarters from New York to San Francisco, in part because its philosophy has found more traction with donors in Silicon Valley than finance types on the East Coast. . . .

This year, GiveWell has picked three top charities: GiveDirectly, an organization that provides cash transfers, via cellphone, to people in Kenya and Uganda (and rigorously monitors its results), the Schistosomiasis Control Initiative and the Deworm the World Initiative, two programs that pay for inexpensive but highly effective parasitic treatments in developing nation.

Read it all here. Christianity Today's "Economic Matters" columnist Bruce Wydick further drills down on whether direct cash payments rather than in-kind donations make the largest impact in combatting poverty:

Researchers at MIT recently carried out a randomized controlled trial to test the impacts of Give Directly. Released in October, the MIT study found that just over a year after receiving their first cash transfer,

household assets were 58 percent higher (mainly in herd animals), enterprise revenues were 48 percent higher from new livestock and expanded small businesses, family food consumption had increased so much that there was a 42 percent reduction in the number of days children went without food.

Moreover, the researchers found no increases in the consumption of what even economists call "sin goods": alcohol, cigarettes, or gambling.

These kinds of impacts are much greater than has been reported from a series of recent randomized trials of microfinance, another potential source of Christmas giving. Organizations such as Kiva, for example, offer microfinance gift certificates online. A Kiva gift certificate has the potential to be "a gift that keeps on giving" as the capital is recycled to borrower after borrower. But a half-dozen recent randomized controlled trials of microfinance undertaken around the world indicate that is typically has only moderate impacts, mainly on business expansion; the impact on household income and children's welfare pales in comparison to the impact of the cash grants. Indeed, in a recent study on microfinance in Nepal, my co-authors and I found that about three-fourths of the apparent before-and-after impact of microfinance is an optical illusion. The illusion is created when borrowers take loans at the time other positive factors are impacting their microenterprises.

But while Wydick seems to conclude that direct cash payments may have the largest impacts on the poor, he notes that there is a significant "social capital" benefit to in-kind contributions such as that provided by Heifer International:

At this point it seems that the burden of proof has now fallen to gifts-in-kind organizations to prove that what they do is more effective than simply giving poor people short-run injections of cash that they can spend in the way they deem most appropriate to their situation. Because of this, it is tempting to want to steer the Christmas gift in the direction of a Give Directly donation. But Heifer's evaluation director Rienzzie Kern sees the issue differently. In a public response to NPR, he acknowledges that while cash may help individual families in the short term, Heifer's mission, he says, is not so much about cows as about building sustained social capital within villages, as offspring of the animals are passed from family to family. Farm animal donation is a means to community-building, he maintains, something that is hard for cash to do.

Read it all here. I was intrigued enough to make a donation to GiveDirectly, but I think that Heifer International has a point about the value of "social capital" in addition to direct cash payments.  I plan to give to both types of organizations.  What do you think?