SAN DIEGO, California — There are thousands of charities with causes that range from giving access to clean water or protecting the environment that rely solely on the donations that people give. These charities market their grand visions and rely on donations to further their cause, but how can one discern which one is effective to give to and what are the obstacles that prevent people from giving?
Dean Karlan, a professor of economics at Yale University, states that we tend to have an availability bias when it comes to giving to charity. Many are wary of donating to charities because of poor transparency and the fear of exploitation. The bad reputation has resulted in people refraining from giving anything at all, and in their minds they have incorrectly equated this to effective giving.
First, people’s greatest concern is that their contribution will be misused or ineffective. More specifically, people are concerned with the how much portion of their contribution is actually going toward the cause, and not toward the overhead expenditures, which largely include paying the administrative staff and other expenses.
However, looking strictly at the overhead expenditures of a charity organization is a poor way of assessing its effectiveness. According to Karlan, overhead expenses are usually reports found straight from a charity’s nonprofit tax return and are not indicative of their performance. However, Karlan concluded that an organization is not as effective when their overhead expenses exceed 30 percent and suggests to be wary of them.
Therefore, it is more important to look at the impact created by the charities. According to GiveWell, a nonprofit that evaluates the effectiveness of charities, there are several ways to measure the impact:
- Impact evaluations: Most of Karlan’s work is built on using this process. Impact evaluations work by using data-driven analysis to academically assess whether progress is being made.
- Impact evaluations value efficiency, particularly in terms of costs. How can they minimize the costs while also maximizing impact for the greatest number of people?
- Measuring the value-added: A way to measure the work of a charity is to measure the value added. This means to measure the impact of a charity’s work beyond simply delivering the service that was in need. In other words, how else did the initiative help the community?
For instance, if a charity was built on digging wells, it would be easy to measure how many wells they are providing for the community in need. However, it would be useless for an organization to provide three more wells for a village that already has a good, functioning well. Instead of simply using the quantity of wells to measure impact, a way to measure the value-added is perhaps analyzing the overall health of the community and whether the clean water contributed to healthier outcomes for everyone.
Evidence Action, a charity that Karlan supports, scales up initiatives proven, measurable and cheap. One project they support is Deworm the World Initiative, an organization that seeks to de-worm all the children in a community via pills. They do not measure impact by the number of pills they distribute. Rather, they measure impact by keeping track of all the children’s health and assessing whether they still have worms or not. In addition, there are several ways to assess the value-added by their program. One way is to see the school attendance rates of the students. High attendance rates can suggest that the children are healthy enough to attend school and focus.
When one gives to a charity, there is a desire to make sure that value is added and that the money will have a meaningful impact.
– Christina Cho