Earlier this year, Bernadette Young and Peter Hurford recommended that I make a post like this once I had enough karma:
At an event hosted by the DC Effective Altruism meet-up group, we discussed if any organizations with large amounts of money, such as USAID, the Bill and Melinda Gates Foundation, or the World Bank, are actually more effective in choosing causes to benefit than GiveWell.
Many are skeptical of this, because it is easy to point to examples of failed projects, naivety, and bad funding priorities. However, these organizations seem to be pursuing some very promising projects, and there may be levels of effectiveness that are only feasible with such scale.
One argument was made that when you are a large organization, you have the ability to start a new initiative entirely and also guarantee that there is enough overall funding, which small individual donations can't. New organizations have a chance to be far more effective and aren't replaceable in many cases, so it might be the case that it is good for the rich to fund these instead of GiveWell charities.
Another argument was that if these wealthy groups did fill all the room for funding of GiveWell's top charities (they easily could), the top charities would naturally become less effective and not do as well at attracting other funding (I don't think it matters who funds a charity except if it changes the net amount donated to effective causes). The part of this argument that seems to actually matter is whether or not effectiveness will be reduced to the point that other causes would become better to fund, before full funding is reached.
An idea in common between these arguments seems to be that marginal contributions and large sum contributions will differ in cost effectiveness depending on the circumstances of a cause or charity.
If a cause requires $1,000 for its intervention, and you donate $1, you don’t have any effect unless $999 was or will be donated by others so your dollar bridges the gap to the next intervention. If others donate as much or more than is needed, your donation is replaceable. This is part of the problem of effectively coordinating small donors.
If the same cause already has $999 and you donate $1,000 the intervention will happen, but $999 might not be able to be spent on an effective cause. This is the inefficiency of donating too much, and possibly giving an organization room to be less cost effective with its interventions. The room for funding has been surpassed.
When there is high variance in the amount that may be donated, it pays to have a charity where each small contribution can make a difference. With each contribution making a difference, it becomes possible for many different levels of funding to be cost effective. The charities that GiveWell recommends seem to fit this pattern: they have very inexpensive interventions that are scaleable. Returns on investment are close to linear, even if there are diminishing returns.
On the other hand, with things like research, there may be larger brackets for what amount of money can make a difference. Once higher levels of funding are reached there is likely to be better cost effectiveness. If the next most meaningful way for a group to do better is to hire a new employee, they may need a lot of money. Meeting and not exceeding the need of such organizations requires coordination that small donors are unlikely to achieve. This may be where the rich have a comparative advantage. Returns on investment may be more like a step function, at each new threshold there is a sudden jump in effectiveness.
I don't have a strong opinion on these arguments, but I do think this is a good place to discuss them. Should what large aid groups focus on influence what we focus on? Should we work toward changing these organizations to be more effective if they aren't already? Should the amount of money you earn actually change where you donate?
(I will post some examples of what the Bill and Melinda Gates Foundation has looked into in the comments below, as well as an earlier comment from Peter Hurford responding to an earlier version of this post. If there is any mathematical naivety in the arguments presented above, please point it out. Some of the reasoning about marginal versus large sum donations falls into a similar category as the Sorites paradox, and I imagine it might be the sort of confusion you can defeat with math. For example, taking limits in math is a way to deal with Zeno’s paradoxes)