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OVERHEAD COSTS, CEO PAY AND OTHER CONFUSIONS Which charities make the most difference? – Doing Good Better: Effective Altruism and a Radical New Way to Make a Difference by William MacAskill


Problema: hai 100 euro da donare. A chi dai? Come fai la differenza?  Come scegli la tua ONLUS??


Books for Africa (BFA). BFA’s mission is to improve education by shipping donated books from the USA to the African continent where they are distributed by non-profit partners. Founded in 1988, it has shipped over 28 million books to forty-nine different countries. On its website, the problem and its solution are vividly described: Most African children who attend school have never owned a book of their own. In many classrooms, 10–20 students share one textbook… Former UN secretary general Kofi Annan has personally endorsed BFA, saying, ‘Books for Africa is a simple idea, but its impact is transformative. For us, literacy is quite simply the bridge from misery to hope.’


Development Media International (DMI). Its focus is on preventing deaths of African children under five. It aims to do this by designing and broadcasting radio and TV programmes that provide health education… In the charity’s words: 6.3 million children worldwide die under the age of five every year. In 2013 one in 11 children in sub-Saharan Africa died before their fifth birthday … Many people cannot recognise when their child has a potentially dangerous illness,DMI currently operates in Burkina Faso, and has plans to run similar programmes in DR Congo, Mozambique and Cameroon….


GiveDirectly. Its programme is simple: it transfers money from donors directly to some of the poorest people in Kenya and Uganda who are then free to use that money however they wish… In their words: Recipients use transfers for whatever is most important to them; we never tell them what to do. An independent evaluation of our work in Kenya by Innovations for Poverty Action found that recipients use transfers for a wide variety of purposes that on average generate large income gains….


According to Charity Navigator, ‘Savvy donors know that the financial health of a charity is a strong indicator of the charity’s programmatic performance. They know that in most cause areas, the most efficient charities spend 75% or more of their budget on their programmes and services and less than 25% on fundraising and administrative fees.’


Books for Africa’s overhead costs are a tiny 0.8% of their total expenditure (which was $24 million in 2013), and their CEO is paid $116,204, which is only 0.47% of that total expenditure. For these reasons, and for their general financial transparency, Charity Navigator has given BFA its highest four-star rating for seven years running.


GiveDirectly isn’t rated by Charity Navigator, but would also do well by these metrics. So far, of every $1 that’s been donated to GiveDirectly, between 87¢ (in Uganda) and 90¢ (in Kenya) has been transferred to the poor, with the rest spent on enrolment, follow-up and transfer costs.


In contrast, Development Media International’s overheads amount to 44% of its total budget, and there is little financial information on its website. Charity Navigator only evaluates US-based charities, so it does not evaluate DMI, which is based in the UK. However, DMI clearly performs much worse than the two other charities according to Charity Navigator’s metrics.


think about the logic behind this reasoning if you apply it to personal spending. Suppose you’re deciding whether to buy a Mac or a PC. What factors would you consider? You’d probably think about the design and usability of the two computers, the hardware, the software, and the price. You certainly wouldn’t think about how much Apple and Microsoft each spend on administration.. If we don’t care about financial information when we buy products for ourselves, why should we care about financial information when we buy products for other people?


The first thing to explore is whether there’s high-quality evidence regarding the impact of the programme that the charity implements.


Given the dearth of instructional materials in schools in Sub-Saharan Africa, it might seem obvious that distributing textbooks will be beneficial to the students that receive them. But, surprisingly, there’s little good evidence in favour of this idea, and some evidence against. Development economists have tested the effect of increasing the number of textbooks in schools in Africa (remember Kremer and Glennerster?) and have found that, in the absence of teacher training, providing textbooks has either no discernible effect


What does this charity do?… How cost-effective is each programme area?How robust is the evidence behind each programme?How well is each programme implemented?Does the charity need additional funds?Does the charity need additional funds?


1. What does this charity do?

This might seem like an obvious question, but often what most people think a charity does is quite different from what it actually does. For example I was surprised to find out that many developed-world medical charities spend only a small fraction of their money on research, with the rest spent on other programmes, even though research is what they emphasise in their marketing and websites.


2. How cost-effective is each programme area?

We want to estimate what a charity achieves with a given amount of money, so our focus should always be on cost-effectiveness rather than just effectiveness.


The estimated cost-effectiveness of GiveDirectly’s programmes is very impressive, but the estimated cost-effectiveness of DMI’s programme is even more so. There’s a lot of health knowledge that we have without even realising it. For example we all know that we should wash our hands regularly: it’s a lesson that’s drilled into us from childhood. Moreover, we know to use soap and that just because our hands look clean that doesn’t mean they are clean. In many poor countries, however, people have never been told this, or they regard soap as a precious commodity and are therefore reluctant to use it for hand washing. This can have severe consequences. Diarrhoea is a major problem in the developing world, killing 760,000 children every year, primarily through dehydration. (For comparison, that’s a death toll equivalent to five jumbo jets crashing to the ground every day, killing everyone on board.)


3. How robust is the evidence behind each programme?

Often we should prefer a charity that has very good evidence of being fairly cost-effective to a charity that has only weak evidence of being very cost-effective: if the evidence behind an estimate is weak, it’s likely that the estimate is optimistic, and the true cost-effectiveness is much lower. For example, the evidence behind claims made on charities’ websites or marketing materials is often very shaky, and sometimes potentially misleading.


Claims of a programme’s effectiveness are more reliable when grounded in academic studies. If there’s been a ‘meta-analysis’ – a study of the studies – that’s even better… it’s even better if the charity has done its own independently audited or peer-reviewed randomised controlled evaluation of its programmes….


One of the most damning examples of low-quality evidence concerns microcredit (that is, lending small amounts of money to the very poor, a form of microfinance). Intuitively, microcredit seems like it would be very cost-effective, and there were many anecdotes of people who’d received microloans and used them to start businesses that, in turn, helped them escape poverty. But when high-quality studies were conducted, microcredit programmes were shown to have little or no effect on income, consumption, health, or education.


With these warnings at the top of our minds, how should we compare GiveDirectly and DMI? Here, GiveDirectly clearly has the edge. Cash transfers are one of the most well-studied development programmes, having been shown to improve lives in many different countries around the world… Finally, the independent development think-tank Innovations for Poverty Action has run a randomised controlled trial on GiveDirectly, so we can be confident not just about the efficacy of cash transfers in general, but also about cash transfers as implemented by GiveDirectly….


Because transferring cash is such a simple idea, and because the evidence in favour of cash transfers is so robust, we could think of them as the ‘index fund’ of giving. Money invested in an index fund grows (or shrinks) at the same rate as the stock market; investing in an index fund is the lowest-fee way to invest in stocks and shares.


In the case of mass-media education, we do have a plausible explanation for why it could be more effective than cash transfers: mass-media health education isn’t something individuals can buy, and even if they could, they probably wouldn’t know just how valuable it is. Markets alone cannot provide mass-media health education, so it needs to be funded and implemented by governments or non-profits. However, the mere fact we have a plausible explanation for how mass-media education could be more cost-effective than cash transfers doesn’t show that it is more cost-effective. When we look at the evidence for supporting mass-media education, we find it’s weaker than the evidence for cash transfers.


The fact that the evidence for the $10/QALY figure is weaker than the evidence for GiveDirectly’s cost-effectiveness estimates provides a reason for preferring GiveDirectly to DMI.


4. How well is each programme implemented?

Even if a charity has chosen an extremely cost-effective programme with very robust evidence supporting it, it still might implement that programme badly. For example distribution of antimalarial bed nets is an extremely cost-effective programme if implemented correctly, but if recipients of the bed nets don’t believe they’re necessary or don’t believe they’re effective, they may use them for other purposes.


Both GiveDirectly and DMI seem excellent in terms of the quality of their implementation.


5. Does the charity need additional funds?

Even after finding a charity that works on an extremely cost-effective programme with robust evidence behind it, we still need to ask whether our contribution will make a difference. Many effective programmes are fully funded precisely because they are so effective.


For example developing-world governments usually fund the costs of vaccination programmes for the cheapest vaccines such as those for tuberculosis, polio, diphtheria, tetanus, pertussis, and measles, providing these vaccines through existing health systems.


If a charity has recently received a windfall, it might not be able to use additional donations effectively. This may have been true of the Against Malaria Foundation in 2013: GiveWell had named it its top-recommended organisation in 2012, and it received a surge in donations totalling $10 million.


Both GiveDirectly and DMI are in a good position to use more funding, but GiveDirectly could do more with additional funds than DMI could. GiveDirectly could productively use an additional $25–$30 million of donations in 2015 and expects to receive about $10 million, whereas DMI could productively use $10 million in 2015 and expects to receive $2–4 million.


As you may have guessed, I deliberately chose these two charities because the answer is unclear. Of the considerations we’ve canvassed, the most important issues are estimated cost-effectiveness versus robustness of evidence. The estimated cost-effectiveness of DMI is higher than that of GiveDirectly, but the evidence behind that estimate is weaker than the evidence behind the estimate of GiveDirectly’s cost-effectiveness. Which charity one chooses depends crucially on how sceptical one should be of explicit cost-effectiveness estimates, and that depends on your level of optimism or pessimism about this programme.


you’ll notice that most of the charities I discuss implement health-based programmes in poor countries… But what about education, or water provision, or economic empowerment? These are all promising areas, but global health stands out for a couple of reasons. First, it has a proven track record: smallpox eradication is the clearest example… In contrast, the link between aid and economic growth is less clear. Second, by its nature the evidence behind health interventions is more robust….




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