I think the “overhead ratio” heuristic is moderately rational because
There are some real scam charities that skim a lot off the top. (Not quite a charity, but a recent example is the claim that Sarah Palin’s PAC only uses 3% of its funds for its intended purpose.)
If you have limited time and are only donating small amounts, it’s potentially not worth the effort to look up detailed information, so evaluating based on what’s available may be better than nothing. (At least you reduce your chance of donating to a scam that way.)
The work of many charities is hard to quantify. Development aid is probably among the easiest, but how do you quantify MIRI’s cost-effectiveness and compare it with other charities in its league? If two charities seem to both do good work per employee, but one charity spends more of its funds on its core employees, that charity is the better deal.
I think 1. and 2. are partially true but 3. seems to be the result of fuzzy and faulty thinking to me.
The work of many charities is hard to quantify. Development aid is probably among the easiest, but how do you quantify MIRI’s cost-effectiveness and compare it with other charities in its league? If two charities seem to both do good work per employee, but one charity spends more of its funds on its core employees, that charity is the better deal.
Yes, if you’re concerned about appearances, but not if you’re concerned about expected impact. High variance does not imply that the answer is indeterminate or that the amount of good work per employee is equal.
If you have limited time and are only donating small amounts, it’s potentially not worth the effort to look up detailed information, so evaluating based on what’s available may be better than nothing. (At least you reduce your chance of donating to a scam that way.)
It is worth than nothing. Donor emphasis on overhead ratios causes charities to spend less on overhead than they consider optimal. So if anything one should assume charities with higher overheads to be less willing to yield to this pressure, and hence more cost-effective (at least as long overhead expenses do not exceed certain upper bounds beyond which one could reasonably suspect corruption or incompetence).
I don’t think this argument works, unfortunately. (I know that in a separate post you said you were only wondering about/floating it.) The reason is that the amount that charities would spend on overhead, were it not for donor emphasis on this, isn’t in fact what “they consider optimal” for altruistic purposes, because they’re not only concerned with altruistic purposes. To put it another way, in your separate post you said that “charities are better judges of how their own resources should be allocated than is the public”. And it’s plausibly true they’re better judges of how to spend resources for altruistic purposes. But again, these aren’t their only purposes.
I’ve worked for many non-profits and in my experience most are primarily concerned with the self-interest of their employees, which the donating public isn’t. So in that respect the donating public makes better decisions.
Serving the self-interest of employees is where a lot of overhead spending goes, including through larger salaries than are justified by the good that those salaries do, among other things. Salaries are typically a large part of overhead. This connects to what Brian’s said. I agree with him that higher salaries are some evidence of the employees being less dedicated and more self-interested, all else being equal. Other factors are important too of course, including how much they focus on fun or prestigious work.
I think the “overhead ratio” heuristic is moderately rational because
There are some real scam charities that skim a lot off the top. (Not quite a charity, but a recent example is the claim that Sarah Palin’s PAC only uses 3% of its funds for its intended purpose.)
If you have limited time and are only donating small amounts, it’s potentially not worth the effort to look up detailed information, so evaluating based on what’s available may be better than nothing. (At least you reduce your chance of donating to a scam that way.)
The work of many charities is hard to quantify. Development aid is probably among the easiest, but how do you quantify MIRI’s cost-effectiveness and compare it with other charities in its league? If two charities seem to both do good work per employee, but one charity spends more of its funds on its core employees, that charity is the better deal.
I think 1. and 2. are partially true but 3. seems to be the result of fuzzy and faulty thinking to me.
Yes, if you’re concerned about appearances, but not if you’re concerned about expected impact. High variance does not imply that the answer is indeterminate or that the amount of good work per employee is equal.
It is worth than nothing. Donor emphasis on overhead ratios causes charities to spend less on overhead than they consider optimal. So if anything one should assume charities with higher overheads to be less willing to yield to this pressure, and hence more cost-effective (at least as long overhead expenses do not exceed certain upper bounds beyond which one could reasonably suspect corruption or incompetence).
I don’t think this argument works, unfortunately. (I know that in a separate post you said you were only wondering about/floating it.) The reason is that the amount that charities would spend on overhead, were it not for donor emphasis on this, isn’t in fact what “they consider optimal” for altruistic purposes, because they’re not only concerned with altruistic purposes. To put it another way, in your separate post you said that “charities are better judges of how their own resources should be allocated than is the public”. And it’s plausibly true they’re better judges of how to spend resources for altruistic purposes. But again, these aren’t their only purposes.
I’ve worked for many non-profits and in my experience most are primarily concerned with the self-interest of their employees, which the donating public isn’t. So in that respect the donating public makes better decisions.
Serving the self-interest of employees is where a lot of overhead spending goes, including through larger salaries than are justified by the good that those salaries do, among other things. Salaries are typically a large part of overhead. This connects to what Brian’s said. I agree with him that higher salaries are some evidence of the employees being less dedicated and more self-interested, all else being equal. Other factors are important too of course, including how much they focus on fun or prestigious work.