Manny donors contribute to charitable organizations with limited knowledge about their effectiveness. This lack of information can prevent funds from reaching the most impactful charities.

Acquiring reliable information about a charity’s “impact” requires resources. If donors bear these costs, they might forgo the data, discouraging charities from producing it, according to a recent study.

George Mitchell, a professor specializing in nonprofits and philanthropy, collaborated with Chengxin Xu and Huafang Li to investigate how information costs influence donor choices. Their research, involving nearly 2,000 U.S. adults, estimated the potential impact lost when donors personally incur information costs.

“Impact” is defined as the measurable effects a charity achieves. donors aim to maximize impact per dollar by supporting charities that deliver high impact at a low cost.

in the experiment, participants selected one of ten hypothetical charities with the mission “to save lives.” Each participant was paired with a fictitious partner who would also support the chosen charity. Participants could access information about each charity’s impact per dollar before making their selection.

Participants could either pay for the information themselves or instruct their partner to pay. The chosen charity received the combined gifts, minus any information costs. The total expenditure remained constant irrespective of who paid or whether information was purchased.

the study found that when someone else covered the information costs, participants were more likely to donate to more efficient charities, increasing the average impact of donations by approximately 13%. This suggests that donors make more informed decisions when they don’t have to pay for the information themselves.

Why it Matters

“When someone else paid,participants were more likely to direct their gifts to more efficient charities,raising the average impact of donations by about 13%.”

In 2023, Americans donated over $550 billion to charity. A 13% increase in the impact of charitable giving, achieved by shifting information costs, could unlock an additional $7 billion in impact if applied to just 10% of total giving. Organizations and philanthropists focused on data-driven impact, such as effective altruists and large foundations, might potentially be willing to cover these costs.

However, not all donors are equally willing to pay for information that could enhance the impact of their charitable contributions. Research indicates that most Americans desire data on the impact of charities, but the funding source for this data remains unclear. If charities bear the cost, they essentially ask donors to pay for it, potentially diverting funds from program delivery.

What Remains Unknown

The applicability of these findings to real-world giving scenarios is still uncertain. Donors may hesitate to prioritize information if it reduces direct service funding,even if it enhances overall impact. Additionally,relying on impact-per-dollar data could favor easily measurable outcomes,potentially overlooking equally critically important but harder-to-assess initiatives or those with longer-term results.

Future Directions

Donors now have access to more data about charities than ever before.Platforms like Candid and Charity Navigator offer resources to inform donors. Organizations such as GiveWell provide charity recommendations based on data analysis.Further research will explore opportunities to enhance the impact of charitable giving by ensuring donors are well-informed, enabling them to maximize their contributions.