Diminishing returns

Diminishing returns (or diminishing returns to scale) is the decrease in marginal output of a production process as one factor of production is increased while the remaining factors are held constant.

Diminishing returns (or diminishing returns to scale) is the decrease in marginal output of a production process as one factor of production is increased while the remaining factors are held constant.

Giving money to an altruistic project (for example, a charity) increases the amount of useful work that can be done by that project—this is a social return on the money donated. If an area exhibits diminishing (marginal) returns,returns, then the social return on each additional dollar will continuously decline as they give more and more money is given to the project.

Giving money to an altruistic project (for example, a charity) increases the amount of useful work that can be done by that project—this is a social return on the money donated. If an area exhibits diminishing (marginal) returns, then the social return on each additional dollar will decline as they give more to the projectproject.

If charities face diminishing marginal returns, it may make sense to only fund them to a certain level: beyond that we say they have no additional room for more funding. Given that organizations and areas may face different returns to additional labour than they do to additional capital, it may be worth considering whether they are more talent- or funding- constrained (though there are also ways that framing could be misleading).^[4].^[5]

1. ^{^}

   Khan, Anu & Rachel Baxter (2021) Why we say ‘funding opportunity’ instead of ‘charity’, Founders Pledge, February 22.

2. ^{^}

   Cotton-Barratt, Owen (2015) Part 4: The law of logarithmic returns, Global Priorities Project, February 6.

3. ^{^}

   Dickens, Michael (2016) How should a large donor prioritize cause areas?, Philosophical Multicore, April 25.

4. ^{^}

   See Benjamin Todd (2018) Think twice before talking about ‘talent gaps’ – clarifying nine misconceptions, 80,000 Hours, November 12, and 12.

5. ^{^}

   Arden Koehler & Keiran Harris (2020) Benjamin Todd on what the effective altruism community most needs, 80,000 Hours, November 12.

This point does not only apply to charities and money: it can also apply to other kinds of funding opportunities (e.g., individuals, universities, scientific research programmes, think tanks, nonprofit organisations; Khan & Baxter, 2021)organisations)^[1] and other kinds of resources (e.g., time and labour). However, it is unclear to what extent diminishing returns apply in different areas. Owen Cotton-Barratt (2015) gives an overview of the variety of cases it seems to apply to.^[2] However, Michael Dickens (2016),Dickens, for instance, argues that there are no detectable diminishing marginal returns in animal advocacy or work on existential risk.^[3]

If charities face diminishing marginal returns, it may make sense to only fund them to a certain level: beyond that we say they have no additional room for more funding. Given that organizations and areas may face different returns to additional labour than they do to additional capital, it may be worth considering whether they are more talent- or funding- constrained (though there are also ways that framing could be misleading; see Todd, 2018 and Todd et al. 2020)misleading)^[4].

BibliographyFurther reading

Cotton-Barratt, Owen (2015) Part 4: The law of logarithmic returns, Global Priorities Project, February 6.
Discusses cases with diminishing marginal returns.

Dickens, Michael (2016) How should a large donor prioritize cause areas?, Philosophical Multicore, April 25.
Argues that there are no detectable diminishing returns in animal advocacy or existential risk.

Khan, Anu & Rachel Baxter (2021) Why we say ‘funding opportunity’ instead of ‘charity’, Founders Pledge, February 22.

Koehler, Arden & Keiran Harris (2020) Benjamin Todd on what the effective altruism community most needs, 80,000 Hours, November 12.

Todd, Benjamin (2018) Think twice before talking about ‘talent gaps’ – clarifying nine misconceptions, 80,000 Hours, November 12.

1. ^{^}

   Khan, Anu & Rachel Baxter (2021) Why we say ‘funding opportunity’ instead of ‘charity’, Founders Pledge, February 22.

2. ^{^}

   Cotton-Barratt, Owen (2015) Part 4: The law of logarithmic returns, Global Priorities Project, February 6.

3. ^{^}

   Dickens, Michael (2016) How should a large donor prioritize cause areas?, Philosophical Multicore, April 25.

4. ^{^}

   See Benjamin Todd (2018) Think twice before talking about ‘talent gaps’ – clarifying nine misconceptions, 80,000 Hours, November 12, and Arden Koehler & Keiran Harris (2020) Benjamin Todd on what the effective altruism community most needs, 80,000 Hours, November 12.

donation choice | effective altruism funding | effective giving | room for more funding | neglectedness | philanthropic coordination | philanthropic diversification | room for more funding | thinking at the margin

donation choice | EAeffective altruism funding | effective giving | room for more funding | neglectedness | philanthropic coordination | philanthropic diversification | room for more funding | thinking at the margin