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Matching donation funds and the problem of illusory matching

5 Post author: Stefan_Schubert 18 September 2015 08:05PM

On average, matching donations supposedly do increase charitable giving (though I want to see more rigorous research on this - tips are welcome). One criticism against them is, though, that they are "illusory" - that is, that the matching donor eventually donates the same amount whether smaller donors match their donations or not. That means that a dollar from a smaller donor doesn't actually cause the matcher to contribute more.

One way to make matching donations real, as opposed to illusory, is this. Suppose that the matching donor is indifferent between donating to two charities (e.g. Against Malaria Foundation and MIRI). At the same time, lots of small donors think that one of them is far better than the other. Also, suppose that the matching donor sets the terms so that it's virtually certain that their whole matching fund will be used up (this could be done, e.g. by making the matching ratio very favourable).

Under these conditions, it will make a difference whether a small donor contributes or not, since if you don't, chances are that your donation will be replaced by a donation to the other charity. That means that a dollar from you as a smaller donor on average does cause the matcher to contribute more to your favourite charity.

 

This suggest a more general strategy for leveraging charity contributions. You could set up a set of matching funds, to which small donors could contribute. These funds would be "disjunctive" - they would match contributions to, e.g. AMF or MIRI, Open Borders or MSF or The Humane League, etc. The funds would from time to time declare that they match any donations to their target charities, and supporters of the respective target charities would start competing, in effect, for the matching donations.

In the simplest system, only people who are more or less indifferent between the target charities would donate to the matching funds. A somewhat more complex system incentivizes people who prefer one of the target charities, A, to give to the matching fund. Under such a system, an "A-ear-marked" donation to the matching fund would increase the matching donations (e.g. from 1:1 to 3:2) to A, and decrease matching donations to the other target charities the matching fund supports. That will, in turn, incentivize more giving to A relative to the other target charities. It is important that such adjustments are done in the right way, though. If, e.g. supporters of A has contributed 70 % of the matching fund, and supporters of B 30 %, then roughly 70 % of the extra money the matching fund generates (thanks to additional donations) should go to A, and 30 % to B. (It could actually get even more complicated than that, but let us leave this thread here for now.)

If such a system of matching funds was set up, an important question would be: should you donate to a matching fund, or donate to a target charity, and get your donations matched by a matching fund? Suppose that you expect those running the matching funds to adjust the matching ratios so that any donation to them that is ear-marked for your favourite charity A means that all extra donations your donation generates will go to A. In other words, if each dollar to the matching fund generates X cents in extra donations, you giving an A-ear-marked donation will mean X more cents to A. Then your decision will depend on:*

 

1) The size of X.

2) Your opinion of the charities competing with A in various matching funds. The better you think they are, the less reason you have to donate directly to A (since then you care less about money not going to A).

3) Replaceability effects. If you don't donate to A, who will replace you? Someone donating to A, or to some other charity? The more likely you think it is that you will be replaced by another donor to A, the less reason you have to donate directly to A.

4) The matching fund's matching ratio Y.

 

Suppose, for instance, that X = .2, that you think that the competitors to A in a particular matching fund generate zero utility, and that the probability that your donation will be replaced by another A donor is 50 %. Then you should choose to contribute to the matching fund if Y < .4:1, and donate directly if Y > .4:1.

 

You could set up a whole stock exchange, where people could buy shares in matching funds, and make donations to charities that will be matched by matching funds. It's an interesting question what the average level of matching would be in such a system. The higher it would be, the more charitable giving it would presumably generate. Therefore, one should to increase that level beyond .4:1 (beyond which people will start donating to the target charity in our example), which is not very high. For instance, you could tweak the system in a way that incentivizes matching, or you could try to get large donors or even the government to exclusively give matching donations.

These complex issues are still a bit foggy to me, and I might have made some mistakes. Any comments are welcome. See also this text on the EA forum where a similar system involving the government as the matching donor is discussed. This is an instance of Moral Trade, a concept developed by Toby Ord.

* If you don't think that, your opinion of whether A will get more or less than X extra cents because of your donation is a fifth parameter to consider.

Comments (4)

Comment author: [deleted] 18 September 2015 11:56:06PM *  3 points [-]

That and your ideas are very interesting. Am I right in supposing they are inspired by Google's price matching announcement, or the GWWC price matching announcement on LessWrong month ago?

A few months ago I wanted to donate to Overcoming Bias. To my surpise...they wouldn't let me. Here is the story they give:

Back in the 1700s, prizes were a fairly common way to reward innovation. … Eventually, though, prizes began to be replaced by grants that awarded money upfront. Some of this was for good reason. As science became more advanced, scientists often needed to buy expensive equipment and hire a staff before having any chance of making a discovery.

But grants also became popular for a less worthy reason: they made life easier for the government bureaucrats who oversaw them and for the scientists who received them. Robin Hanson, an economist at George Mason University who has studied the history of prizes, points out that they create a lot of uncertainty – about who will receive money and when a government will have to pay it. Grants, on the other hand, allow a patron (and the scientists advising that patron) to choose who gets the money. "Bureaucracies like a steady flow of money, not uncertainty," said Mr. Hanson, who worked as a physicist at NASA before becoming an economist. "But prizes are often more effective if what you want is scientific progress." …

These are the two essential advantages of prizes. They pay for nothing but performance, and they ensure that anyone with a good idea — not just the usual experts — can take a crack at a tough problem.

See more at OB

There is traction in the analogues (or identical, in some sense) idea of performance or outcome based funding in australia for welfare, and the US for technology and industry, but grants are overwhelming given out to businesses based on shoddy applications and at a larger scale to lobbyists, based on private information.

I suspect with the ear-marking of taxes, that wouldn't be necessarily analogues to matching donations. Those taxes could be used to find prizes. Matching prizes, I suspect, would have a very different impact than matching donations since I would suspect that the increasing value of prize increases its marginal prestige per dollar invested into it. As long as the prize is drives behaviour above the median utility driven by prizes, it is probably an altruistic mechanism.

Ear marking could be totally appropriate for such a system. McKinsey published an article on prize philanthropy:

research suggests that three conditions are paramount: a clear objective (for example, one that is measurable and achievable within a reasonable time frame), the availability of a relatively large population of potential problem solvers, and a willingness on the part of participants to bear some of the costs and risks.

That final point, willingness on the part of participants to bear some of the costs and risks is an assessment that private individuals could make. A subset of the the population a government grant administrator might assume is accepting of prize philanthropy could be more or less accepting, and thus inform the tax provider's judgements on whether to choose prize philanthropy, granting, a particular policy area, whatever. General arguments applying to direct democracy over representative democracy apply, weighted by capital.

According to research australia Australia's main reason for not privately donating to medical research is that they don't believe they can afford to give to medical research, that cancer research is the most underfunded and are overwhelmingly keen on the idea of indirect taxation of an additional dollar on medicine prices to fund medical research (97%). However, the majority of Australian Research Council Funding goes to psychology at 64mil, with the next highest ebing public health ad health services at 45mil then biomedical engineering, clinical sciences and neurosciences and around 20mil. Everything else hwversaround the 3 mil or less mark, from opthamology (which I've read elsewhere has overwhelming the longest surgical weight list times), nutrition and paediatrics at the lowest funding at 200,000 dollars (and you wonder why nutrition research is so poor, don't blame dietietics researchers)

MY conclusion is that ear marked taxes could work cause Australians prefer indirect tax. Business in general seems to be supportive of indirect taxation - I saw a rep from the Chamber of Commerce saying we actually need more indirect taxation but less other taxes. With indirect taxation, as its administered by another org, how would it be earmarked? Then again, I'm sure brands could think of a way to strategically differentiate themselves by claiming they will earmark funds on their behalf to cancer research, since it's popular, for instance. Hopefully it will rationalise medical spending away from psychology, at the very least.

I reckon indirect it's less risky, appropriate because of the current global economic slump, while driving innovation.

It's a shame the new MRFF is for grants only, in the bill.

Comment author: Dagon 22 September 2015 10:49:55PM 0 points [-]

To whom is the criticism directed? Should the matching provider not be allowed to put whatever chrome they want over their donation? Should the charity not advertise that there is a match?

I strongly agree that any leverage from matching is illusory - the pledged match amount is going to the charity regardless. It probably has a small effect on donors, making them more likely to donate if there's a match offer than not. (an exception is employer matching where the same amount gets donated, but participant choices determine where it goes).

I think this applies to your proposal as well - it doesn't cause more gifting, and it doesn't get more money to the preferred (by weight of donation) destination. It's just complexity for no value over "shut up and donate to the charity(-ies) you support. I think if you do the math (including any preferences or indifference on behalf of both the matcher and the matchees), you'll find that it pretty much works out to a wash for any system which doesn't violate a preference.

Comment author: CronoDAS 19 September 2015 07:09:12PM 0 points [-]

Your "illusory" link is broken.

Comment author: Gunnar_Zarncke 18 September 2015 11:14:44PM 0 points [-]

The incentivization scheme is tricky and I'd guess (>70%) that it would work (significant increase in giving).

But - and this is independent of the scheme - I dispute your motivating assumption of illusority

That means that a dollar from a smaller donor doesn't actually cause the matcher to contribute more.

at least in its full generality. The donor could feel that if his own charitable giving isn't suitably matched then it is voided (and presumably invested in some other way). I'd act that way to some degree. I think some many people some need for reciprocation and this is more a question of degree.