(Cross-posted from my blog)
Charitable giving is one of many great ways to make the world a better place. I have spent some time talking about how we might do it better, but I have largely ignored one major problem with giving. Namely, it is hard for donors to coordinate giving and to take advantage of their collective information.
Consider the individual donor with a small amount to give. Though spreading donations out is one method to ensure that giving is sustainable, it does lower your total charitable impact. In fact, the “optimal” individual donor gives to a single charity! That is, an altruist who wants to do the most good should only give to the charity that they consider to have the highest marginal impact .
Contrast this with mega-donors. Since large donors can see diminishing returns when giving to only one charity, it makes more sense to spread donations out. Additionally, since their decisions are more consequential, it makes sense for them to gather more information. On top if this, large donors can also better coordinate with each other, ensuring that they don’t overspend on the same charity. Even better, mega-donors have enough money to start entirely new charitable organizations and get new projects off the ground.
These factors combine to make mega-donation significantly more impactful per dollar than what small donors can achieve.
This is a pretty big limitation on the overall impact of charitable spending, since the majority of charitable spending comes from small donors  and the vast majority of potential future donations will come from small donors .
We need to find a way to get many small donors to act like a single, large donor, incorporating their combined information, coordinating their giving, and finding new charitable opportunities. In other words, in order to maximize our impact, we need to find a way to give collectively.
Public debate, meta-charities like Givewell, and public charity finances already helps to coordinate giving somewhat, but we can do much better. There are already several promising directions. Donor lotteries take the simple approach of turning many small donors into one large donor by giving all the money to one person. Donation dominant assurance contracts (which I discussed briefly here) are another approach, but while it coordinates giving, it does little to utilize collective information in order to make better decisions. Charity prediction markets make better use of collective information but cannot themselves direct donations.
I want to put forward one new idea to encourage creative thinking in this space. I call it “iterative public donation”. It starts with a group of donors signing a donation-DAC and privately determining how they are dividing their personal budget amongst a list of charities. These budgets are added up and the total donations going to each charity are listed publicly. Next, donors adjust the amount they are giving to each charity based on the current total. This process repeats until the amount donated to each charity equilibrates. This simple mechanism allows donors to respond to how much others are spending and learn others opinions on charity, leading to better coordinated giving overall. This process could be augmented with some form of public discussion and data gathering to improve the knowledge of donors before they participate.
There is plenty of room for new ideas and experimentation here. Finding a way to give collectively would significantly increase the overall effectiveness of donations and permanently change the way we give.
The reason for this is that, for a small donor, their donations have roughly linear impact in the size of donation size. In this case, the impact per dollar is roughly the marginal impact per dollar at the charities current funding level. The situation is different for very large donors, where donations might exhibit diminishing marginal returns, which encourages spreading the donations out.
See the section titled “The 1 percent” at the end of this article.
Personal income in the United States dwarfs total charitable spending, and the combined wealth of the worlds billionaires (that’s $20 trillion per year compared to a one-time $5 trillion, so the net present value is much higher). This means that small donors are essential to increasing total charitable giving in the future.