We all know that an extra dollar is worth more to you the poorer you are. That's why it can be good to donate money to an organisation like GiveDirectly even when a few cents in the dollar get used up in transaction costs. But how much more is it worth? Economists have a good quantitative model of what is going on, which can enable us to make rough comparisons about whether, say, people on $1,000 per year would get more value from an extra $100 than people on $2,000 per year would get from $200. This can help us work out how much additional cost we should bear to get money to the very poorest people.
It can also be useful for improving our thinking about the relative values of different financial flows such as remittances and aid. It is easy to find out the sizes of these in dollars, but what about the size in terms of value to the individuals? If the individuals in one case are substantially richer, then this can really change things.
I've written an article explaining how all of this works up on centerforeffectivealtruism.org. Have a read and let me know what you think.