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Cost-effectiveness

TagLast edit: 30 May 2021 9:00 UTC by MichaelA

Giving opportunities are not all equally cost-effective. In fact, at least within the context of charities focused on health, it appears that some donations can be thousands of times more effective than others.

Such variation in effectiveness in part follows from the existence of immense global inequality, which implies that many people in the world suffer from problems that could be solved with only small amounts of money. Consider, for instance, a developing world charity that spends $20 per person on a surgery to prevent blindness, compared to a charity that spends $40,000 per person to provide guide dogs to blind people in the United States. But even charities that think globally are far from equal in their abilities to turn the donations they receive into real improvements in people’s lives.

Within a given focus area, we can understand variation in cost-effectiveness as arising from both underlying variation in the impact of the interventions that charities carry out and variation in how much charities spend to carry them out. For instance, the cost-effectiveness of a charity that combats malaria will depend both on whether it distributes medication or bednets and on how much wasteful spending it engages in. People in the effective altruism community tend to believe that the former source of variation is more significant than the latter.

One general finding is that, in the long run, the cost-effectiveness of additional donations to many charities will diminish as the amount they have already received grows. Because of this phenomenon, we would expect the cost-effectiveness of charities to become more and more equal in a world where donations were based on cost-effectiveness.

Bibliography

Caviola, Lucius et al. (2020) Donors vastly underestimate differences in charities’ effectiveness, Judgment and Decision Making 15 (4). Shows that lay people estimate that the variation in charity cost-effectiveness is muted, whereas experts estimate them to be much larger.

Ord, Toby (2019) The moral imperative toward cost-effectiveness in global health, in Hilary Greaves & Theron Pummer (eds.) Effective Altruism: Philosophical Issues, Oxford: Oxford University Press, pp. 29–36. Discusses the moral relevance of variations in cost-effectiveness.

Tomasik, Brian (2014) Why charities usually don’t differ astronomically in expected cost-effectiveness, Essays on Reducing Suffering, January 5 (updated 16 September 2017).
Argues that the variation in cost-effectiveness of the charity sector isn’t as significant as some people believe.

Related entries

cause prioritization | impact assessment | intervention evaluation | ITN framework

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Aaron Gertler27 Dec 2019 2:21 UTC
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