Re: charity and time preference
[EMAIL PROTECTED] (Wei Dai) writes: >On Fri, Jun 06, 2003 at 12:25:11PM -0400, Robin Hanson wrote: >> Typical charity recipients also do not have access to borrowing >> opportunities >> that are as efficient as the ones available to you. So yes you could help >> them by delaying charity to people who would like to save, and borrowing >> money yourself to give money to people who would like to borrow (and then >> not giving them as much later). But unless you have a way to tell which >> charity recipients fall into which class, it is hard to see how to help >> them overall. > >Good point. There is a way to tell which recipients fall into which class >though. Just ask them. That is, when giving to a recipient, instead of >giving a bundle of cash, have him design an income stream for himself >that has the same present value (to the donor) as the bundle of cash and >give him that instead. > >This might increase transactions costs significantly, however. So I wonder >if there is a way to tell whether on average charity recipients would >rather borrow or save. Could someone do a study where you pick a random I would start by asking whether their preferences tell us whether they ought to be recipients of charity. Given two people who are reported to be deserving of charity, one of whom will save and one of whom would borrow if possible, it seems to me that we should take the desire to borrow as evidence of greater need. One example of a probably deserving recipient is a person with a fatal disease who can't afford a relatively cheap drug that would cure the disease. If such a cure would enable the person to resume productive work, the return on that investment in a drug would typically be well above the market interest rate. The cost of curing diseases is declining in a way that probably enables us to say that money invested now and spent 50 years from now will cure fewer diseases. When I try to imagine a person who is as deserving of charity but who would save the money now, I always end up imagining someone who is more fortunate. So my guess is that we should give as much of what we intend to give as we can now, unless that entails significant transaction costs associated with borrowing. (I don't look like I'm following that advice, but that's at least in part because my estimate of my future earnings fluctuates a lot.) Note that this analysis assumes that the reasons for charity are solely intended to redistribute wealth to the least fortunate (although it might also apply to redistribution of wealth intended to maximize efficiency by giving wealth to those who can use it best). Only one of the charities I contribute comes close to fitting that description (TrickleUp). I also contribute to the EFF, and will probably soon contribute to the Methuselah Mouse Prize, for reasons which include a desire to benefit personally from increasing freedom and curing aging. I think my willingness to contribute to charities of this type ought to depend in part on my ability to identify organizations whose returns are at least as high as the returns on my financial investments. -- -- Peter McCluskey | "To announce that there must be no criticism of http://www.rahul.net/pcm | the President, or that we are to stand by the | President right or wrong, is not only unpatriotic | and servile, but morally treasonable to the | American public." - Theodore Roosevelt
Re: charity and time preference
> No, the logic is not the same at all. In the charity case the logic > is that your contribution is too small to change the relative marginal > suffering level among charities > Alex But that is not why one contributes to charity. The reason is "sympathy" in the Smithian sense (Theory of Moral Sentiments). One identifies and sympathizes with some cause. The cause has needs year after year. The donor feels satisfaction from contributing to the cause. It is basically like other consumption. If one sympathizes with two causes, then one gives to both. Say, once one has given $500 to cause A, the marginal satisfaction is greater when the next dollar goes to cause B. That is also why one contributes continously rather than all at once. The marginal utility I derive from one more dollar is less today after having contributed $1000 than if I wait a year and donate another dollar. Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
--- Wei Dai <[EMAIL PROTECTED]> wrote: a donor should give all of his contributions to one charity, and not spread them among several. The logic is almost exactly the same. Likewise, a parent with several children should confine his spending to one child and let the rest die off. The logic is exactly the same. Fred Foldvary No, the logic is not the same at all. In the charity case the logic is that your contribution is too small to change the relative marginal suffering level among charities - thus if children in Africa is the most pressing need before your first 100 dollar contribution it will also be the most pressing need after your contribution. In the child case it is much more likely that your contribution to the first child will eventually lower the marginal need of that child below that of your other children. (Note that the model applies only when the reason you give is to assuage suffering which may not explain most charity and certainly not parental giving to their children.) Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: charity and time preference
--- Wei Dai <[EMAIL PROTECTED]> wrote: > ... surely one should either borrow > money to do a life time worth of giving right away, or save and do all > charity in one's will, or otherwise concentrate all charity giving to a > single moment in time. That should generalize to raising children; when one's child is born, one should borrow enough money to create a fund that will pay for all the child's expenses until his age of maturity, rather than pay for the child's expenses every year out of one's income. Yet nobody does this! Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
--- Wei Dai <[EMAIL PROTECTED]> wrote: > a donor > should give all of his contributions to one charity, and not spread > them among several. The logic is almost exactly the same. Likewise, a parent with several children should confine his spending to one child and let the rest die off. The logic is exactly the same. Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
I'm surprised that everyone who has responded to my post has defended the conventional wisdom on charity giving. But surely one should either borrow money to do a life time worth of giving right away, or save and do all charity in one's will, or otherwise concentrate all charity giving to a single moment in time. Given Robin's comments, I'm not sure anymore when is actually the best time to do the giving, but it cannot be optimal to do what many people actually do, which is to give a percentage of one's income to charity as one earns it. This point is very similar to the one Steven Landsburg made in one of his Slate articles, http://slate.msn.com/id/2034/, which was that a donor should give all of his contributions to one charity, and not spread them among several. The logic is almost exactly the same.
Re: charity and time preference
--- Wei Dai <[EMAIL PROTECTED]> wrote: > By holding on to my money, I'm actually increasing > the present value of the gift from the perspective of the recipient. > Can anyone find a flaw in this argument? If the discount rate used for present value equals the interest rate of the investment, then the amount of funds today equals the present value. Some charities have an urgent need at the present, such as earthquake aid or feeeding people in a famine. If one gives later, it would be too late. Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
Here's a quandry -- Since the more abject human misery there is, the more varied, specialized, and likely relatively cheaper (due to variety, breadth of the distribution of misery, etc) types of charity available for "consumption," under what conditions are you willing to put up a side payment to increase it? In seriousness, it would seem to me that many cases of charity involve extremely high returns (above investment) in terms of future cost savings for the recipients or those sympathetic to the cause -- look to the preservation of eastern art by Western sources or disease prevention. Examples and cliches abound (Teach a man to fish... Once of prevention... and on). At 04:43 PM 6/6/2003 -0400, you wrote: On Fri, Jun 06, 2003 at 11:49:15AM -0400, Susan Hogarth wrote: > Speaking as the director of a very small but very active charity, I can tell > you that we tend to have *quite high* time preferences. Possibly some of that > is bleedover from the personality of the founder (that would be gotta-have-it- > now me:) but I honestly believe that for most small groups working in > conditions where the need is always in far excess of resources available, this > time preference exists. My original post was more about charitable giving targeted at human beings not animals, so I was talking about the time preferences of the end recipient rather than of the charitable organization. But since you bring it up... Do you prefer to rescue two beagles ten years from now, or one beagle today? Now I realize that your time preference for funding does not directly correspond to your time preference for the rescue of beagles, because you're competing with other charities (i.e., if you don't get the money now some other charity might get it instead). But the incentives are more straightforward for the donor. If he prefers the former he should hold on to the money and give it to a beagle rescue organization ten years from now (assuming he expects a 100% return on his ten-year investment).
Re: charity and time preference
On Fri, Jun 06, 2003 at 11:49:15AM -0400, Susan Hogarth wrote: > Speaking as the director of a very small but very active charity, I can tell > you that we tend to have *quite high* time preferences. Possibly some of that > is bleedover from the personality of the founder (that would be gotta-have-it- > now me:) but I honestly believe that for most small groups working in > conditions where the need is always in far excess of resources available, this > time preference exists. My original post was more about charitable giving targeted at human beings not animals, so I was talking about the time preferences of the end recipient rather than of the charitable organization. But since you bring it up... Do you prefer to rescue two beagles ten years from now, or one beagle today? Now I realize that your time preference for funding does not directly correspond to your time preference for the rescue of beagles, because you're competing with other charities (i.e., if you don't get the money now some other charity might get it instead). But the incentives are more straightforward for the donor. If he prefers the former he should hold on to the money and give it to a beagle rescue organization ten years from now (assuming he expects a 100% return on his ten-year investment).
Re: charity and time preference
On Fri, Jun 06, 2003 at 12:05:01PM -0400, Eric Crampton wrote: > Shouldn't we also worry about how poor people are now relative to how > they'll be in the future? Today's poor are much better off than the poor > from a century ago; presumably the poor a century from now will be less > deserving than those of the present day? Doesn't that apply to the poor person's financial decisions too? If you're right, he should think that he or his children will be much better off in a century, so why should he save today?
Re: charity and time preference
Sure, the flaw is that this argument would imply that you hold the money forever. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: charity and time preference
On Fri, Jun 06, 2003 at 12:25:11PM -0400, Robin Hanson wrote: > Typical charity recipients also do not have access to borrowing > opportunities > that are as efficient as the ones available to you. So yes you could help > them by delaying charity to people who would like to save, and borrowing > money yourself to give money to people who would like to borrow (and then > not giving them as much later). But unless you have a way to tell which > charity recipients fall into which class, it is hard to see how to help > them overall. Good point. There is a way to tell which recipients fall into which class though. Just ask them. That is, when giving to a recipient, instead of giving a bundle of cash, have him design an income stream for himself that has the same present value (to the donor) as the bundle of cash and give him that instead. This might increase transactions costs significantly, however. So I wonder if there is a way to tell whether on average charity recipients would rather borrow or save. Could someone do a study where you pick a random sample of charity recipients, have them design income streams for themselves (and have a trustworthy organization commit to giving them the income streams so they have proper incentives to report accurately) and then average out the results? This still isn't quite right, because it ignores future generations. Clearly a potential charity recipient who hasn't been born yet would prefer that I delay giving to charity, but the study won't be able to survey them, so the result will be biased towards giving too early. How to solve this problem?
Re: charity and time preference
Re: greater utility tomorrow argument: then taken to the extreme, your fund should not go to charity when you die but continue to grow until mankind can realistically forecast the end of the world at which point the fund (now an enormous asset) can be directed to improve the lives the least well-off of the last citizens of the world. My real criticism is the implicit notion that the future value of utility (because of the inside buildup of your bequest) is greater than the present value of that bequest. On 6/6/03 12:49 PM, "Wei Dai" <[EMAIL PROTECTED]> wrote: > On Fri, Jun 06, 2003 at 09:29:34AM -0400, Richard L. white wrote: >> Ignoring the utility of the money to the target charity today, e.g., >> food or medicine to live, > > But the money will have a greater utility tomorrow (since there will be > more of it). Unless you think there will be less needy people in the > future? > >> the money value of the PV should also be reduced >> by the tax benefit you have forgone by not making the donation today. > > Well, that's true. But over the long run the PV is still greater if I hold > on to the money. Also, if my argument is correct, government policy should > be changed to take it into account. For example, one should be able to > obtain tax benefits for putting money into an individual charity account, > similar to the way IRAs work.
Re: charity and time preference
On 6/5/2003 Wei Dai wrote: Suppose I have some money that I don't want to spend, and I'm sure I'll never want to spend it. Should I give it to charity now, or put it in an index fund and bequeath it to charity in my will? Here's my argument in favor of charitable procrastination. The typical recipient of charity does not have access to the kind of investment opportunites (e.g., low cost U.S. mutual funds) that I have, and his other investment opportunities usually have a lower (perhaps even negative) rate of return. Charitable organizations are legally forced to spend a certain percentage of their assets per year, so they can't invest the money indefinitely either. By holding on to my money, I'm actually increasing the present value of the gift from the perspective of the recipient. Can anyone find a flaw in this argument? Typical charity recipients also do not have access to borrowing opportunities that are as efficient as the ones available to you. So yes you could help them by delaying charity to people who would like to save, and borrowing money yourself to give money to people who would like to borrow (and then not giving them as much later). But unless you have a way to tell which charity recipients fall into which class, it is hard to see how to help them overall. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Assistant Professor of Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
Re: charity and time preference
If we assume that everyone thinks like this then charitable fund would not receive as much funding as it needs. I don't see why charity do not have access to the same kind of investment as you do. Is there a law that prevent them from having access? Also, you are assuming that charity have some reserve left over. It could be that they use all their fund to the maxium possible by distributing it out as soon as possible. --- Wei Dai <[EMAIL PROTECTED]> wrote: > Suppose I have some money that I don't want to > spend, and I'm sure I'll > never want to spend it. Should I give it to charity > now, or put it in an > index fund and bequeath it to charity in my will? > > Here's my argument in favor of charitable > procrastination. The typical > recipient of charity does not have access to the > kind of investment > opportunites (e.g., low cost U.S. mutual funds) that > I have, and his other > investment opportunities usually have a lower > (perhaps even negative) rate > of return. Charitable organizations are legally > forced to spend a certain > percentage of their assets per year, so they can't > invest the money > indefinitely either. By holding on to my money, I'm > actually increasing > the present value of the gift from the perspective > of the recipient. > > Can anyone find a flaw in this argument? > __ Do you Yahoo!? Yahoo! Calendar - Free online calendar with sync to Outlook(TM). http://calendar.yahoo.com
Re: charity and time preference
On Fri, Jun 06, 2003 at 09:29:34AM -0400, Richard L. white wrote: > Ignoring the utility of the money to the target charity today, e.g., > food or medicine to live, But the money will have a greater utility tomorrow (since there will be more of it). Unless you think there will be less needy people in the future? > the money value of the PV should also be reduced > by the tax benefit you have forgone by not making the donation today. Well, that's true. But over the long run the PV is still greater if I hold on to the money. Also, if my argument is correct, government policy should be changed to take it into account. For example, one should be able to obtain tax benefits for putting money into an individual charity account, similar to the way IRAs work.
Re: charity and time preference
Shouldn't we also worry about how poor people are now relative to how they'll be in the future? Today's poor are much better off than the poor from a century ago; presumably the poor a century from now will be less deserving than those of the present day? On Fri, 6 Jun 2003, Richard L. white wrote: > On 6/5/03 11:22 PM, "Wei Dai" <[EMAIL PROTECTED]> wrote: > > > Suppose I have some money that I don't want to spend, and I'm sure I'll > > never want to spend it. Should I give it to charity now, or put it in an > > index fund and bequeath it to charity in my will? > > > > Here's my argument in favor of charitable procrastination. The typical > > recipient of charity does not have access to the kind of investment > > opportunites (e.g., low cost U.S. mutual funds) that I have, and his other > > investment opportunities usually have a lower (perhaps even negative) rate > > of return. Charitable organizations are legally forced to spend a certain > > percentage of their assets per year, so they can't invest the money > > indefinitely either. By holding on to my money, I'm actually increasing > > the present value of the gift from the perspective of the recipient. > > > > Can anyone find a flaw in this argument? > > > Ignoring the utility of the money to the target charity today, e.g., > food or medicine to live, the money value of the PV should also be reduced > by the tax benefit you have forgone by not making the donation today. > > >
Re: charity and time preference
Quoting Wei Dai <[EMAIL PROTECTED]>: > Suppose I have some money that I don't want to spend, and I'm sure I'll > never want to spend it. Should I give it to charity now, or put it in an > index fund and bequeath it to charity in my will? > > Here's my argument in favor of charitable procrastination. The typical > recipient of charity does not have access to the kind of investment > opportunites (e.g., low cost U.S. mutual funds) that I have, and his other > investment opportunities usually have a lower (perhaps even negative) rate > of return. Charitable organizations are legally forced to spend a certain > percentage of their assets per year, so they can't invest the money > indefinitely either. By holding on to my money, I'm actually increasing > the present value of the gift from the perspective of the recipient. > > Can anyone find a flaw in this argument? Besides the obvious one about present needs going unfullfilled, there is this: Small charities may not have access to the investment options you do, this is true. But they do grow oranizationally, and withholding small but signifigant present contributions in favor of larger but later contributions can retard that growth potential. An example of this would be the use of a moderate-sized donation to buy advertising for volunteers or to plow back into a fundraising event, procurement of phone service or website, or some other signifigant organizational step. In the most extreme scenario, if all donors invested their future donations and withheld current donations, the organization would starve for lack of current funds and would not be in existance to *recieve* the more generous future gifts. Speaking as the director of a very small but very active charity, I can tell you that we tend to have *quite high* time preferences. Possibly some of that is bleedover from the personality of the founder (that would be gotta-have-it- now me:) but I honestly believe that for most small groups working in conditions where the need is always in far excess of resources available, this time preference exists. The situation with respect to large charitable organizations may differ signifigantly for several reasons, but I don't feel as qualified to discuss that. So go buy some raffle tickets now as my signature 'asks' ;-) -- Susan Hogarth Buy some raffle tickets or else! http://www.tribeagles.org/raffle/
Re: charity and time preference
On 6/5/03 11:22 PM, "Wei Dai" <[EMAIL PROTECTED]> wrote: > Suppose I have some money that I don't want to spend, and I'm sure I'll > never want to spend it. Should I give it to charity now, or put it in an > index fund and bequeath it to charity in my will? > > Here's my argument in favor of charitable procrastination. The typical > recipient of charity does not have access to the kind of investment > opportunites (e.g., low cost U.S. mutual funds) that I have, and his other > investment opportunities usually have a lower (perhaps even negative) rate > of return. Charitable organizations are legally forced to spend a certain > percentage of their assets per year, so they can't invest the money > indefinitely either. By holding on to my money, I'm actually increasing > the present value of the gift from the perspective of the recipient. > > Can anyone find a flaw in this argument? Ignoring the utility of the money to the target charity today, e.g., food or medicine to live, the money value of the PV should also be reduced by the tax benefit you have forgone by not making the donation today.
