Art Carden  

Holiday Benevolence: Increasing or Decreasing Marginal Returns?

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I want to maximize bang for my charitable bucks; good stewardship demands it (here's one way, for example). Should I, therefore, participate in Christmas toy drives or other holiday giving opportunities? Or should I instead spread my giving more evenly over the calendar? At the margin, how does another dollar given at Christmas compare to a dollar given in August? Does the production function for peace on earth and good will to men exhibit increasing or decreasing marginal returns? Is it nice and smooth, or is it more complex?

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CATEGORIES: Microeconomics

COMMENTS (8 to date)
Bostonian writes:

I doubt it makes much difference whether you donate in August or December. I have wondered about the tradeoff between donating now and investing and donating a larger amount 20 years later. What is the "discount rate" for charity?

John B. writes:

It depends on what you mean by 'charity'. But that said. probably the most important point is that charities' efforts to get donations are expensive, so you can maximise the post-collection value of your donation if:

1. You only give to one charity;

2. You get off the solicitation lists of other charities as much as you can;

3. You give in one big lump;

4. You give cash (cans, toys and the like add a lot of logistical overhead);

5. You give it as soon as possible because charities have high discount rates (i.e. they value present pain very highly).

Bottom-line, what feels good is usually not very efficient. Dropping off a new teddy bear at a toy box feels very charitable but when you consider the whole logistical chain and account for donated unpaid labor, it probably costs more than buying a teddy bear close to the final consumer and provides less utility than the same amount of cash in the final consumer's hands.

Chris H writes:

Well it's hardly conclusive, but in the US at least the death rate rises during the winter months and falls during the summer (for charts showing this phenomenon for the past few years see this link). Now if we assume that the percentage of deaths which are preventable through charitable action stays stable as a portion of all deaths (or at least doesn't fall so far as to mean the same or smaller number of charity-preventable deaths happens in winter as any other time of year), then there is a potentially compelling reason that charitable organizations could need more money around the Christmas season than in much of the rest of the year.

However, I think the real reason Christmas charitable giving might be good is it provides more effective pressure to give. If there is no "season of giving" people will distribute part of what they would have spent around Christmas throughout the year, but they may also wind up giving less overall. The Christmas season might be a means to focus people's thoughts toward charity better than less targeted, year round pleas for generosity might manage. It's a bit like a "boy who cried wolf" phenomena. If you constantly hear how you should give, that might have less effect than occasional more specific requests.

gwern writes:

The increase in Christmas giving in America seems like an increase which is highly predictable, easily quantified, quickly noticed by any nonprofit, and would date back centuries at this point.

Is there any reason to think that charities/nonprofits would not have factored in Christmas giving into all their projections and plans and expenditures, and would not be smoothing their expenditures over the year as appropriate?

MingoV writes:

@John B (item 4): Numerous charities prefer goods over cash. There are at least three veterans charities that want goods, especially clothes. Goodwill prefers goods (electronic devices, furniture, appliances, cars, etc.) so it can train people to fix them. Goodwill sells the repaired items to cover operating expenses. Unrepairable items are used for parts or for training. Soup or food kitchens accept canned foods. These donations don't add to overhead and may provide some variety for those who eat there.

On the question of the effectiveness of annual versus periodic donations, I believe that depends on the charity. For charities that get money, it probably doesn't matter. For those that get goods, massive donations in December create serious logistical problems. Periodic donations make more sense.

ColoComment writes:

It may not be the most efficient method (see John B. above), but each December I pick 12 charities (one for each month of the following year), and send a single donation (the same amount each month) to each, during "its" month.

My donation amount is so small in the grand scheme of things that no organization is going to plan its spending around its receipt. :-)

I tend to favor local charities, to keep my giving in my community where the need is defined by those most familiar with it (local kids' groups, women's shelters, county food bank, etc.)

Of the non-local charities, The Salvation Army is a frequent repeat. I also tend to favor military-related organizations: VAC (the Veterans Airlift Command), for example, and I have several veteran/ wounded warrior organizations on my list, as well as a kids' dental charity.

It's a method that works for me. I'm comfortable with my choices and feel that my gifts are well-used, and it's become a regular part of my life and my financial planning for the year.

BJ Terry writes:

I get the sense from reading the GiveWell blog that because so much of charities' fundraising occurs during the holiday season, their budgeting process is built around annual donations. That being the case, there is probably no particular benefit to donating throughout the year. They encourage donating a consistent amount from year to year so that the charity can better estimate their funding.

Overall there are decreasing marginal returns (especially for the largest charities), but most charities are so ineffective from an objective standpoint that it's not really the right question to ask. Selecting the charity with the largest impact is by far the most important decision, vastly eclipsing donation timing. The charities with the highest impact are orders of magnitude better than the average charity. GiveWell explicitly analyzes charities' room for additional funding, which is analogous to the marginal return of additional funding. This year they have removed the Against Malaria Foundation from their top recommendations, due to its inability to utilize additional capital effectively, implying smaller marginal returns than their top-ranked charities.

Art Carden writes:

Thanks for the great comments. This is a perplexing problem because most charities simply don't have a "bottom line." BJ Terry's links to GiveWell illustrate just how difficult this is.

And of course, there's a further complication: do I do more for the world's poor by giving to a charity or by leaving the money in the bank?

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