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The short sellers of philanthropy?

Gene ExpressionBy Razib KhanDecember 3, 2009 12:04 PM


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For the past few months I've been following The Givewell Blog. Here's a recent post, Why are we always criticizing charities?:

Recently, we've criticized (in one way or another) many well-known, presumably well-intentioned charities (Smile Train, Acumen Fund, UNICEF, Kiva), which might lead to some to ask: should GiveWell focus on the bad (which may discourage donors from giving) as opposed to the good (which would encourage them to give more)? Why so much negativity and not more optimism? The fact is, we are very optimistic about what a donor can accomplish with their charity. Donor's can have huge impact -- save a life, improve equality of opportunity, or improve education. Our research process, and our main website, are (and always have been) built around identifying outstanding charities. GiveWell hasn't set a bar that no charity can meet. Six international charities have met and passed the bar. Where most charities fall short, they succeed. The problem is: because the nonprofit sector is saturated with unsubstantiated claims of impact and cost-effectiveness, it's easy to ignore me when I tell you (for example), "Give $1,000 to the Stop Tuberculosis Partnership, and you'll likely save someone's life (perhaps 2 or 3 lives)." It's easy to respond, "You're just a cheerleader" or "Why give there when Charity X makes an [illusory] promise of even better impact?" We don't report on Smile Train, Kiva, Acumen Fund, UNICEF, or any others for the sake of the criticism; we write about them to show you how much more you can accomplish with your gift if you're willing to reconsider where you're giving this year. Unless you have strong reason to believe otherwise, I'd recommend you choose a great charity as opposed to one that's merely better-than average. If you only have a fixed amount to give, why not support the very best?

My general stance is this: giving to charity has two ultimate outcomes. First, it often makes the donor feel good that they've done good. Second, it often does good. There's a third issue which is frictional: it does good for employees in the non-profit sector. In the market economy there is a principal-agent problem, but there's also the same issue among non-profits. Here's a recent post on Smile Train which I found disheartening, because I'd thought "Smile Train" was one of the "good guys," but it turns out that there're not perfect. But if true it is good to know these things. Here's an article on the founders of GiveWell:

As hedge-fund analysts, Holden Karnofsky and Elie Hassenfeld made six-figure incomes deciding which companies to invest in. Now they are doing the same thing with charities, for a lot less pay. Mr. Karnofsky and Mr. Hassenfeld, both 26, are the founders and sole employees of GiveWell, which studies charities in particular fields and ranks them on their effectiveness. GiveWell is supported by a charity they created, the Clear Fund, which makes grants to charities they recommend in their research.

Short sellers have a bad reputation. But they're probably necessary to keep the market honest.

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