Saturday, June 17, 2006

Is Philanthropy Driven by Results?

Tyler Cowen had an interesting column in the NYT on June 15 reporting on recent work by John List, an economist at the University of Chicago, and his colleagues.

List's research shows that providing a match of 1:1 does increase donations, but anything beyond that level of match has little effect. It shows that entering donors into a lottery can also increase giving, but that such a lottery effect can also be matched simply by having an attractive woman do the asking. Those findings will probably not surprise many seasoned non-profit marketers.

What is even more interesting is Cowen's take on what List's research says about donors.

"Professor List has yet to delve into the specifics of donor motives, but the obvious conclusion is that donors do not behave like customers... [D]onors often give to charities for reasons of pride. Monitoring a charity means worrying about the wisdom of contributing to that charity. Many donors would instead prefer simply to feel good about their generosity and thus they deceive themselves into thinking that all is going well.

Furthermore, many donors seek a sense of affiliation and wish to be a part of large and successful organizations — the "winning team," so to speak. Again, these donors do not focus on how, or if, they actually end up improving the world.
"It remains to be seen which particular innovations will stick or spread, but well-informed and self-critical donors are probably a key to improvement for nonprofit organizations.

If donors do not abandon failing causes, those efforts will continue. Perhaps the content of donor pride needs to change. Rather than taking pride only in their generosity, donors should also take pride in their willingness to confront unpleasant news. Many individual donors are reluctant to take such steps, but the result would be better charities and greater real generosity all around."

What is interesting here is that Cowen is comparing donations to consumption, not investment. I agree with this - I believe that donors' behavior and motivation is more akin to consumption than to investment.

I don't fully agree with the implications of Cowen's assertion that " Customers take great care to learn about the merits of different expenditures, on cars or on homes, for example." People DO choose their houses and cars based on quality - but only partly. Much of their behavior is influenced by what their neighbors and the people they want to associate with are buying. Emulating and associating with others are major factors in donors' giving behavior as well.

So the goal for philanthropy should be to introduce a heavier weighting of quality into the donation decision, while recognizing the reality of the other factors that drive donors' behavior. This is what we are trying hard to do at GlobalGiving - and our friends at Geneva Global are hard at work on this as well. And groups like College Summit (assisted by people like George Overholser) are leading the way in developing more transparent indicators for quality and accountability.