Many charities aim to influence how others (other donors, governments, or the private sector) allocate their funds. We call this influence on others “leverage.” Expenditure on a program can also crowd out funding that would otherwise have come from other sources. We call this “funging” (from “fungibility”).
In GiveWell’s early years, we didn’t account for leverage in our cost-effectiveness analysis; we counted all costs of an intervention equally, no matter who paid for them.((For example, see row 3 of our 2013 cost-effectiveness analysis for Against Malaria Foundation.)) For example, for the Schistosomiasis Control Initiative (SCI), a charity that treats intestinal parasites (deworming), we counted both drug and delivery costs, even when the drugs were donated. We did this because we felt it was the simplest approach, least prone to significant error or manipulation.
Over the last few years, our approach has evolved, and we made some adjustments for leverage and funging to our cost-effectiveness analyses where we felt they were clearly warranted.
In our top charities update at the end of 2017, we made a major change to how we dealt with the question of leverage by incorporating explicit, formal leverage estimates for every charity we recommend.
This change made our cost-effectiveness estimates of deworming charities (which typically leverage substantial government funding) look more cost-effective than our previous method. For example, our new method makes SCI look 1.2x more cost-effective than in the previous cost-effectiveness update. More details are in the table at the end of this post.
We also think the change makes our reasoning more transparent and more consistent across organizations.
In this post, we:
- Describe how our treatment of leverage and funging has evolved.
- Highlight two major limitations of our current approach.
- Present how much difference leverage and funging make to our cost-effectiveness estimates.