For example, say other donors give the charity $200 in donations restricted to program A and $200 in donations restricted to program B. If I do not donate, then each program gets $200 plus 1/2 of the unrestricted contributions. If I give $100 restricted to program A, then program A will get $300 in restricted contributions, plus 60% of the unrestricted contributions, so the benefit to program A is that it received my $100 plus an additional 10% of the unrestricted contributions.

There simply isn’t any incentive for charities to do what he’s describing. Why spend more money on more popular activities? Few charities even disclose how much money they spend on each activity (even The Carter Center does not despite disclosing just about everything else). Certainly, I would guess that it’s extraordinarily rare for donors to ask about a complete budget breakdown by program and be more likely to support a charity if it’s spending slightly more on their favorite activity. (More common for them to take the fallacious “shortcut” described here.)

As long as a charity spends enough on an activity to credibly advertise it, it reaps 99-100% of the benefit from a fundraising perspective.

By contrast, when a donation is large enough to be associated with its own specific “project,” that could easily end up costing the charity extra.

No I don’t have any such firsthand knowledge. However I would be shocked if this didn’t happen at all (i.e. if charities were all perfectly efficient at reorganising their funding according to their own priorities and paid no attention to what donors wanted fund unless forced to by lack of moveable funds). The real question is how close charities are to this model as opposed to the model of not moving their flexible money around to counter donor-choice.

Do you have any firsthand knowledge of such charities? My nonprofit experience, mostly limited to the arts, says that organizations will allocate money according to their own priorities unless restrictions force them to do otherwise.

And this is not a bad thing. If you trust a charity to spend your money well, you should trust them to allocate it well. If you don’t trust them to allocate the money in the right way, then their mission is probably not a good fit for your interest as a private donor.

There are exceptions to this rule, but they’re rare and generally apply only to foundations.

The program you restrict your donation to has no unrestricted funding allocated to it

This assumes that the organisation will always shuffle things around so as to best fulfil its own priorities. I doubt that this is true. Surely there are at least some charities that run a couple of programs and will spend more on the one that donors earmark more funds for (even when they could undo the donor preference with unrestricted funds). Indeed, I think this would be quite common (maybe 50% of charities?). You couldn’t rely on it, but I’m sure it does happen.

It could take several forms: not changing any unrestricted funding in response to the donation (for a 100% effect), or moving some unrestricted funding but not enough to cancel the effect (100% effect).