This is a fantastic post and I (unusually) think I agree with basically all of it.
Although I agree with this in principle...
“principles of specialisation and economies of scale from the for-profit world suggest we might expect growth in outputs to outpace increases in budget size.”
I can’t think of many non profit organizations that I’m convinced become more cost effective as they grow, especially when compared with the first 100k-300k they spend. It’s often very hard in the non profit world to take advantage of efficiencies. Also there’s a problem I think as funding increases orgs kind of find ways to spend it to justify those donations.
Often bigger scope means more middle management, higher salaries at the top and less efficiency, while also as organisations grow with mission creep and widening of scope can also often introduce interventions which might be less cost-effective than what they did originally.
Many non profits as they grow claim second order effects to justify these extra costs, like influencing government or building up other organizations doing similar things. The community health worker organizations are classic for this.
“I can’t think of many nonprofit organizations that I’m convinced become more cost-effective as they grow in their core job.”
I can’t say I have many great examples of this either, at least past the first ~3-5 years or ~$1-3m budget. With AIM/CE charities, I think they tend to become more cost-effective in years 3-5 than they are in years 1-2, so there are some gains from very early-stage growth.
Although, I guess one mitigating factor here is that I think early-stage organizations are sometimes effectively cost-offset by a dedicated, high-talent founder. So maybe early ‘on-paper numbers’ don’t fully reflect the counterfactual costs, and that cost would reduce with growth.
That’s a good shout thanks Ian. From having a brief look, I would say they’re decent examples of orgs that have maintained their cost-effectiveness fairly well but I really doubt they’ve become much more cost-effective over time. They’ve done this through continuing to do 1 thing and 1 thing well which I love. In AMF’s case the cost have nets have come down which helps their cost effectiveness, but that’s not much to do with specialisation or economies of scale within their org specifically..
My sense is that AMF has gotten a little less cost-effective over time due to working in slightly less ideal countries. GD might be pretty close, as I am less sure how the low-hanging fruit affects them. It looks like their percentage of funding that goes to beneficiaries has been pretty similar over time from a quick Google search.
I’d say this is missing where GiveDirectly is extremely cost effective.
Their corporate and government friendly brand.
If they can turn the tide on cash-transfers being the benchmark for foreign aid (and maybe even internal government policy) then that might change the game in terms of political efficacy.
Maybe less so in EA than in other charities, but at the ~100K point a hypothetical charity may rely more significantly on volunteer labor compared to the ~1M version of that charity. One could argue that the volunteer labor is a non-economic cost that should be factored into the cost-effectiveness analysis, or could view it as essentially a freebie. From a counterfactual perspective, the correct answer will probably vary.
I think that’s a factor like Joey says between the early and mid stage mark. But after that it’s more the beuracracy, bloat and mission drift which honestly are hard to avoid.
This is a fantastic post and I (unusually) think I agree with basically all of it.
Although I agree with this in principle...
“principles of specialisation and economies of scale from the for-profit world suggest we might expect growth in outputs to outpace increases in budget size.”
I can’t think of many non profit organizations that I’m convinced become more cost effective as they grow, especially when compared with the first 100k-300k they spend. It’s often very hard in the non profit world to take advantage of efficiencies. Also there’s a problem I think as funding increases orgs kind of find ways to spend it to justify those donations.
Often bigger scope means more middle management, higher salaries at the top and less efficiency, while also as organisations grow with mission creep and widening of scope can also often introduce interventions which might be less cost-effective than what they did originally.
Many non profits as they grow claim second order effects to justify these extra costs, like influencing government or building up other organizations doing similar things. The community health worker organizations are classic for this.
“I can’t think of many nonprofit organizations that I’m convinced become more cost-effective as they grow in their core job.”
I can’t say I have many great examples of this either, at least past the first ~3-5 years or ~$1-3m budget. With AIM/CE charities, I think they tend to become more cost-effective in years 3-5 than they are in years 1-2, so there are some gains from very early-stage growth.
Although, I guess one mitigating factor here is that I think early-stage organizations are sometimes effectively cost-offset by a dedicated, high-talent founder. So maybe early ‘on-paper numbers’ don’t fully reflect the counterfactual costs, and that cost would reduce with growth.
Aren’t both AMF and GiveDirectly examples of charities that became more cost effective after scaling into the $millions?
That’s a good shout thanks Ian. From having a brief look, I would say they’re decent examples of orgs that have maintained their cost-effectiveness fairly well but I really doubt they’ve become much more cost-effective over time. They’ve done this through continuing to do 1 thing and 1 thing well which I love. In AMF’s case the cost have nets have come down which helps their cost effectiveness, but that’s not much to do with specialisation or economies of scale within their org specifically..
My sense is that AMF has gotten a little less cost-effective over time due to working in slightly less ideal countries. GD might be pretty close, as I am less sure how the low-hanging fruit affects them. It looks like their percentage of funding that goes to beneficiaries has been pretty similar over time from a quick Google search.
I’d say this is missing where GiveDirectly is extremely cost effective.
Their corporate and government friendly brand.
If they can turn the tide on cash-transfers being the benchmark for foreign aid (and maybe even internal government policy) then that might change the game in terms of political efficacy.
Maybe less so in EA than in other charities, but at the ~100K point a hypothetical charity may rely more significantly on volunteer labor compared to the ~1M version of that charity. One could argue that the volunteer labor is a non-economic cost that should be factored into the cost-effectiveness analysis, or could view it as essentially a freebie. From a counterfactual perspective, the correct answer will probably vary.
I think that’s a factor like Joey says between the early and mid stage mark. But after that it’s more the beuracracy, bloat and mission drift which honestly are hard to avoid.