Value-Driven Altruism

Value-Driven Altruism: How Results Measurement and Valuation Should Lead to More Benefits for the Poor

At present, altruism that helps human beings suffers from market failure.  Standardized information about the price of obtaining specified beneficial results for the disadvantaged is not readily available and, without such information, a market for altruism cannot exist.

Suboptimal allocations of resources are the consequence.  This is unnecessary.  Reasonably competitive markets for human assistance, results that are cost effective can be constructed and relevant prices for human assistance results reported.  Improvements in results for other altruism interests should follow.

A principal goal of funding human assistance efforts is to have a large impact on disadvantaged people.  Since SROIs directly measure these impacts and can be provided in useful, inexpensive ways, they should be used regularly.

Vision

The needs of disadvantaged people are large.  “(A)ltruism is scarce; there is never enough to go around.  The function of economics is to devise social institutions that make it possible to economize on altruism …. Competitive markets, when they function well, are such an institution...” (Solow, Robert M. Work and Welfare. Princeton, N.J., Princeton University Press, 1998, pp 3-4)  This is because such markets provide prices that can help determine which results are obtained, how they get produced, and who receives them in ways that should be beneficial to service recipients, service suppliers, and donors.  Benefit/cost ratios or SROIs are relevant prices for human assistance altruism.

An increased focus on results and their prices using a market-price mechanism should be able to create significant increases in value for service recipients and society.  This is because there is some evidence that many benefits from donations are low and that they vary widely for equally needy people.  SMI’s private hypothesis is that average SROI increases of at least 30-50% are probably possible.  If this is true, significant improvements are probably possible.  Funds can be transferred from low-offer to high-offer SROI projects quickly.  More importantly, significant SROI increases should be feasible through productivity improvements in the mid- to longer term.  The willingness and ability to offer valued results to disadvantaged people and to fund them meet in a marketplace where SROI prices are revealed.  If both of these things happen, donors may be encouraged to increase their giving.

 

 

Strategy

Avoiding market failure, and the requirements for government interventions such failures engender, is a widely accepted, frequently used strategy.

One strategy to start markets and/or to obtain at least ‘market-like results’ is to produce or require charities to inexpensively produce useful, credible, comparable information on the benefits they produce relative to costs and risks.  Practical methods of doing this exist.  SMI recommends several in the initiatives it offers and champions in this website.

We recommend that those considering these recommendations calculate the SROI on doing so.  Pursuing these methods is probably sufficient for significantly increasing the value, productivity and magnitudes of giving in many human assistance projects. This is a testable proposition.  If funds are better spent helping needy people on existing programs than in doing what we propose, spend the money on the programs. 

Doing SROI comparisons across all projects to the satisfaction of everyone is hard.  This is a function that will be served by an established competitive market for all charity results.  While a useful end goal, realizing it is not necessary for SMI to be successful and it does not seem wise to bite all of this off from the start as a strategy to get there.  For this reason, we advocate that useful intermediate products be developed first and quickly.  In specific, we will take and recommend funders and human assistance providers also take the following actions:

  • Exclude religious, ecological, animal concerns etc. for now.  These will be difficult or controversial.  The human assistance work is the largest and most important and it can be done well quickly and inexpensively.
  •  Produce cost-effective SROI estimates that are reasonably credible and comparable and that measure result results per cost and risk (or, ideally, firm fixed price offers for specified human assistance results).  Prepare comparable estimates for a number of service programs across many project areas and geographies, if possible, and include both established programs (reporting historical average SROIs) and marginal new programs (reporting projected SROIs).  Use these estimates to develop market supply offers for people with various needs. 
  • Focus primarily on results that improve the lives of targeted disadvantaged beneficiaries but also include results to society separately.  To facilitate program comparisons, exclude from standard benchmarks such things as multipliers and demonstration effects, but include them separately to help inform donation decisions, if reasonable estimates are available.
  • Value the results in terms of their real income value to beneficiaries – what they would or should pay for the results.
  • Address and adjust for risks of not obtaining results consistently by explicitly using and showing probabilities of various result successes.
  • Include as costs all financial donations, including those that fund overhead, although additional variants might also include the value of volunteered resources.
  • Use bounded estimates for results, benefits values, costs and risk evaluations to provide credible, comparable SROIs fast and inexpensively with a minimum of (progress-stopping) controversy.  When disparate views on these estimates are bounded appropriately, they are unlikely to change conclusions.
  • Offer priced options to improve the credibility and accuracy of SROIs.

Many of the ideas championed here are ‘in the air’.  Cost effective standards of practice and practical methods of implementation are needed and are available for the items listed above. One widely used textbook that presents the main issues is Evaluation by Rossi, Lipsey and Freeman.

The ideas outlined here are explored in greater depth in an article Dr. Colvin published in the Journal New Directions for Philanthropic Fundraising, entitled “Using Prices to Help Obtain Human-Improvement Results” 41 (Fall 2003): 53.  Copies of this article are available upon request.  Contact Us.