Friday, January 21, 2005

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The opportunity costs of tsunami aid

Earlier this month Virginia Postrel accurately predicted that there would be a follow-up story on how "generosity toward tsunami victims is pulling money away from other, often local, charities."

As these stories go, you could do far, far worse than Daniel Gross' Slate essay on the topic. The key paragraph:

The outpouring of tsunami donations in early January 2005 probably won't have much of an effect on overall giving levels. And it's likely that many other extremely worthy charities will see their receipts fall. Is that disappointing? Maybe. But there's a different lesson. What's amazing about these very large figures—$480 million (and counting) for tsunami relief, $1.88 billion post 9/11—is that they are just a drop in the bucket of overall donations. They don't really sway the overall numbers. A very large portion of U.S. charitable giving probably isn't spontaneous. Lots of donations derive from bequests and estates, multi-year commitments from foundations and individuals, and annual gifts from corporations. So, the ability of any one event to inspire some fundamental shift in giving is limited.

Read the whole thing.

posted by Dan on 01.21.05 at 11:39 AM


Good point but there is one small but assuming...

If total aid does not rise - then of course the aid to Indonesia/Sri Lanka/India/Malaysia etc. diverts aids to other nations. But then "but" is that the marginal benefit MAY be greater in these nations than in other nations. OK, the marginal benefit is really high in any nation facing massive number of deaths and the Tsunami area is not the only place in dire need. So as I argue that the shift in aid resources is allocating these funds more optimally, I'm making one hell of an assumption.

posted by: pgl on 01.21.05 at 11:39 AM [permalink]

Good point. A lot of charitable giving in the United States goes to causes, not to people. I have no doubt that the Humane Society and Defenders of Wildlife do notable work. They don't do it on behalf of people who just lost their homes and families in the blink of an eye. But, having said that, we don't know where money is being diverted from -- if it is being diverted from, say, AIDS relief the calculation has to be different.

Another point worth researching (and someone has probably done this already) is where charitable giving comes from. It is no more than common sense to assume that the majority of charitable donations comes from a minority of donors, in other words the people with the money. Tsunami relief donations could be swelled by contributions from people who otherwise don't give much to charities at all, or from groups (like immigrant communities) who have special cause to give a lot more for this purpose than they normally do. Either factor could reduce the size of whatever diversion the tsunami relief effort has caused.

posted by: Zathras on 01.21.05 at 11:39 AM [permalink]

Also: the tsunami hit right at the end of the year, when (1) people in a number of businesses get year-end bonuses and are feeling more generous and (2) people are looking to push donations up to get within this tax year. So it probably sucked away a larger share of donations than if it had happened at another time of year.

posted by: Crank on 01.21.05 at 11:39 AM [permalink]

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