Outsourcing cost of ‘impact’ data could mean 13% more bang for every charitable buck
- Charitable donors often make gifts without knowing which organizations are delivering the biggest impact, potentially wasting their money.
- A study found that when donors pay for information about a charity’s impact per dollar, they are more likely to direct their gifts to more efficient charities, resulting in a 13% increase in overall impact.
- The cost of obtaining this information can be significant, and if donors bear the costs themselves, it may limit their willingness to do so, potentially reducing the overall impact of charitable giving.
- Shifting the cost of information from donors to charities could unlock an additional $7 billion worth of impact, but it’s unclear how well these findings would translate into real-world giving behavior.
- Philanthropists and organizations like GiveWell can harness data about charities to better inform donors and boost the impact of charitable giving, but there are also potential downsides to using data-driven approaches to guide giving.
Charitable donors often make gifts despite having little information about the organizations they support. Without relevant data, that money may not flow to the charities that evidence suggests are delivering the biggest bang for donors’ bucks.
But getting good information about what donors call “impact” takes money, time and effort. If donors are responsible for those costs, then they may not obtain the data, and charities would be less likely to produce the data in the first place.
I’m a public and international affairs professor who researches nonprofits and philanthropy.. I conducted a study in 2023 with Chengxin Xu and Huafang Li, two other scholars of nonprofit management, to better understand whether these costs influence how donors pick charities. Through this study, which involved nearly 2,000 U.S. adults, we were able to estimate how much impact may be lost when donors incur information costs themselves.
Impact refers to the effects a charity achieves. Donors can try to get the most impact per dollar by supporting charities that achieve high impact at low cost.
We asked the participants in our experiment to choose one of 10 hypothetical charities to receive support. All the charities had the same mission: “to save lives.” Everyone was paired with a fictitious partner who would also be supporting the selected charity. Before choosing, the participant had the option to obtain information about each organization’s impact per dollar.
About half the time, the participant could pay for the information themselves out of their own hypothetical budget. In the other half, they could tell their partner to pay out of their partner’s budget. The charity would receive the combined gifts, minus any money paid for information. The total amount spent stayed the same no matter who paid or whether anyone paid.
When someone else paid, participants were more likely to direct their gifts to more efficient charities, raising the average impact of donations by about 13%. In other words, donors gave smarter when someone else picked up the tab for the information.
Why it matters
Americans gave more than US$550 billion to charity in 2023.
If shifting information costs can boost the impact of charitable giving by 13%, then applying that gain to just one-tenth of that giving could potentially unlock about $7 billion worth of additional impact. Funders who are very interested in the potential of data to increase impact, such as effective altruists, philanthropists who emphasize outcomes, and some large foundations, may be willing to bear the costs so others don’t have to. The challenge is that not all donors are equally willing to pay for information that could increase the impact of charitable giving.
Other research findings have suggested that most Americans want to see data about the impact that charities have, but it is not obvious where the funding for this should come from. If charities cover the cost themselves, then they are essentially asking their donors to pay for it. But many donors may want all their gifts to pay for program delivery, not data production.
What still isn’t known
It’s unclear how well these findings would translate into real-world giving behavior. Donors’ appetite for information that comes at the expense of direct services may be limited, even if it improves the overall impact of their gifts. And using data about impact per dollar to guide giving could have downsides. For example, it might reward work that is easy to measure and discourage efforts that are just as important but are harder to assess, or just take longer for the results to be seen.
What’s next
Philanthropists can access more data about charities than ever before. Platforms like Candid and Charity Navigator offer the potential to harness that data to better inform donors. Organizations like GiveWell go even further, recommending specific charities based on rigorous data analysis. I’ll be studying these kinds of opportunities for boosting the impact of charitable giving, because when donors are better informed, they can accomplish more with their money.
The Research Brief is a short take about interesting academic work.
George E. Mitchell receives funding from the Baruch College Fund.