Diminishing returns

Applied to Concave and convex altruism by Leo at 2mo

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.

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). 

KhanKhan, Anu & Baxter, https://founderspledge.com/stories/why-we-say-funding-opportunity-instead-of-charity Rachel Baxter (2021) Why we say ‘funding opportunity’ instead of ‘charity’, Founders Pledge, February 22.

Todd (2018) Think twice before talking about ‘talent gaps’ – clarifying nine misconceptions

Todd et al.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.

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 ismay 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). 

Todd (2018) Think twice before talking about ‘talent gaps’ – clarifying nine misconceptions

Todd et al. (2020) Benjamin Todd on what the effective altruism community most needs

FundingGiving money to an altruistic project (for example, a charitycharity) increases the amount of useful work itthat can do—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 charity.project

The monetary difference between givinga project receiving nothing and givingit receiving $500,000 is obviously the same as the monetary difference between givingit receiving $4.5m and givingit receiving $5m. However, the theory of diminishing marginal returns suggests that in terms of the amount of good done, the difference between givinga project receiving nothing and givingreceiving $500,000 is probably bigger than the difference between givingit receiving $4.5m and it receiving $5m. So if there are diminishing marginal returns, a person or organizationproject will get more good done with their first few dollars than with their last ones.

This point does not only apply to organizations like charities and resources like money: it can also apply to for-profit organizations,other kinds of funding opportunities (e.g., individuals, universities, scientific research programmes, think tanks, nonprofit organisations; Khan & Baxter, 2021) and other kinds of resources like(e.g., time and labour.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. However, Michael Dickens (2016), for instance, argues that there are no detectable diminishing marginal returns in animal advocacy or work on existential risk.

Khan & Baxter, https://founderspledge.com/stories/why-we-say-funding-opportunity-instead-of-charity 

Funding a charity increases the amount of useful work it can do—this is a social return on the money donated. If an area exhibits diminishing returns,(marginal) returns, then the social return on each additional dollar will decline as they give more to the charity.