Nearly thirty years since I started my degree in economics and philosophy at Oxford I was back at a conference ("Good Done Right") that brought together philosophers and economists to discuss “Effective Altruism,” a growing movement that says we have a duty not just to be altruistic but to use our giving to best effect. Even when I ended up disagreeing with the arguments of the philosophers it was refreshing to be challenged by those working in a discipline with different methodologies but similar objectives and who are well versed in the work of economists doing RCTs of poverty programs. There were several areas where I was convinced we should reconsider how we do our work.
I set out here some key lessons from my two days with the philosophers. The most practical were about how to do cost-effectiveness and cost-benefit analysis, although the challenge of how we think about discount rates has wider implications. There was also a fascinating talk from the New Yorker writer Larissa MacFarquhar about the origins of the current cultural hostility to altruists (particularly those who care about people far away and attempt to think rationally about how to help them).
Economists are too queasy about making trade-offs between people: transfers revisited
We economists like to think of ourselves as being part of a rational discipline and I am used to being attacked for being too ready to put numbers on concepts like empowerment. Last week I was pressed to go further in putting numbers on benefits. I was talking about whether or not to include transfers as a cost in cost-effectiveness analysis. (As I have discussed before the reason to exclude transfers from costs is that they are not a cost to society: the cost to the funder is offset by the monetary benefit to the recipient. The reason not to net them out is that in cost-effectiveness we focus on one particular benefit, ignoring all others. Why should monetary benefits be the exception?) But why, someone asked, would we think the benefit to the recipient was equal to the cost to the funder given that there is diminishing marginal utility of income? Shouldn’t we include an estimate for how much more valuable the transfer was to the recipient than to the funder? I was persuaded that our analysis too often fails to take diminishing marginal utility seriously when we consider programs with distributional consequences. This is not just an issue for cost-effectiveness and cost-benefit analysis. When we compare mean outcomes in treatment and comparison groups we too rarely look at how the treatment impacts the distribution of outcomes.
A countervailing argument I had not focused on before is that if a donor is particularly effective at giving a transfer, it has a cost as it reduces the amount that donor can give to other effective causes. To paraphrase Toby Ord, “If we think the poor can use the money more wisely than we can, then we should just give all our money to them rather than spend time figuring out how to give it effectively.” If we think we are better than average at giving away funds then we have to think of the opportunity cost of the transfers we make, in terms of other programs forgone with a tight budget constraint. In other words, not treating transfers as a cost assumes no budget constraint. This may be appropriate for governments (who at the margin can borrow or tax more and we only need to take into account the distortionary cost of taxation) but it is not always appropriate for private donors.
With these balancing interests, transfers might have positive weight (because they go to people with higher marginal utility of income) or negative weight (because of the opportunity cost of the funds they transfer), but it’s lazy to assume these two exactly offset each other, as we tend to do.
Sometimes assessing marginal impact bakes in existing inefficiencies and inequalities
Jeremy Lauer from the WHO presented the case for the WHO-CHOICE model, which for 17 regions of the world constructs the most cost-effective portfolio of health investments (for a given resource envelope). He argued persuasively that assessing the marginal cost-effectiveness of additional interventions meant that some of the biggest inefficiencies in health systems were never challenged and never reformed: we only assessed whether to add new services without asking if we should stop some existing services. During strategic planning we would need to take into account short-run constraints and existing investments, but if we only ever looked at the short-run marginal trade-off we would miss some of the biggest opportunities for improving allocative efficiency.
Are we are handling beneficiary costs incorrectly?
I argued that it is important to take into account the costs programs impose on beneficiaries: such as copayments, donating labor, or taking valuable time to attend program meetings. Because cost-effectiveness is a ratio with two different units—the benefits are measured in units like years of schooling while the costs are in money (dollars)—we traditionally add the beneficiary costs to the monetary side of the ratio. But because we are dealing with a ratio it is not the same thing to add a cost to the denominator as it is to subtract a benefit from the numerator. The difference between adding to costs or subtracting from benefits is much larger when a program is highly cost-effective. Conceptually we should have all the items (positive or negative) related to recipients on one side of the ratio and all those relating to funders on the other. We don’t do this because we don’t know how to translate our recipient costs (copays and time costs) into our benefit units (additional years of schooling or improvements in test scores)--but the current solution is a bit ad hoc and distorting our results.
Toby Ord made a fascinating presentation on the potential gains from moral trade when people have different moral values. Imagine Anthony cares deeply about animal rights and is a vegetarian, while also thinking poverty in developing countries is a problem. Beatrice cares passionately about poverty in developing countries and less so about animal rights. Giving up meat would not be a major cost to her; it’s just not a priority. Anthony is already a vegetarian and would like Beatrice to become one. She agrees to become a vegetarian if Anthony agrees to give a donation to help relieve international poverty. There are substantial (moral) gains to trade from this transaction: both individuals do better in achieving their moral objectives for a given cost to themselves than they would if they acted alone. There a many challenges in attempting to set up a market for moral trade of this sought (and Toby discussed many of them in his talk). When we discuss the concept of “complete markets” in economics, a market for moral trade should be part of it.
Cultural opposition to rational altruism
Most of those seeking to promote RCTs as a way to improve the effectiveness of poverty programs have run into the reaction that thinking carefully about the most efficient way to address poverty and explicitly discussing trade-offs is in some way cold-hearted. While not philosophy, MacFarquhar gave a fascinating presentation of some of the cultural and historical bases for this attitude. She traced how the concept of “codependency,” in which family members who sought to help addicts were thought to want to perpetuate addition because it gave them a sense of being needed and in control, was applied beyond family members to those seeking to help those in need. Anyone who sought out a career of helping others, she argued, had come under suspicion. She also pointed out how few altruistic characters there were in modern novels. Those who appeared at first to be altruistic turned out to be corrupt or hypercritical.