The GiveWell Blog

The fungibility question: How does GiveWell’s funding affect other funders?

How do GiveWell’s funding decisions influence the actions of governments, funders, and other organizations? Answering this question is an important part of figuring out which global health programs are most cost-effective and thus which we should support. We’ve already written about two key factors in our cost-effectiveness estimates: the cost per person reached and the overall burden. But those are only part of the equation.

We also consider what others are likely to do in response to our choices. For example, does our funding displace money the local government had planned to allocate to the program? Or would our funding make other funders more excited to join us in making sure the program is implemented?

Wedding registries provide a loose analogy about how one person’s decision might influence another’s: If someone already bought the toaster on the list, you’re probably not going to buy the lucky couple another one. The money that great-aunt Sally spent on the toaster has displaced the funding you had planned to allocate to the toaster: this is what we call “fungibility.”

In contrast, if the spouses-to-be have signed up for flatware service for 12 and only 6 settings have been purchased, you might prioritize filling out the remainder of the set, to be sure that the couple doesn’t run out of spoons at their upcoming dinner parties. In that case, the guests who purchased the first 6 settings can “crowd in” funding from other guests: this is what we call “leverage.”

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How we work, #3: Our analyses involve judgment calls

This post is the third in a multi-part series, covering how GiveWell works and what we fund. Through these posts, we hope to give a better understanding of our research and decision-making.

Our goal is to recommend funding to the programs we believe have the greatest impact per dollar donated. There’s no simple algorithm for this question. Answering it necessarily involves making judgment calls. Our first post in this series discussed the importance of cost-effectiveness analyses and the many factors we consider; in this post, we’ll share:

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We aim to cost-effectively direct around $1 billion annually by 2025

A little over a decade ago in 2010, GiveWell directed around $1.5 million to the charities we recommended. In 2021, we expect we’ll raise at least $500 million, and may raise as much as $560 million or more.

We never anticipated that we’d grow this large this quickly. We’ve seen rapid growth from donors of all sizes, the most recent of which is a commitment of $300 million from Open Philanthropy.

While this growth comes with challenges—we’re working hard to hire enough researchers—it’s a testament to our donors’ trust in us and enthusiasm for our mission.

But these big numbers are relatively small in the long-term scope of what GiveWell hopes to achieve. We believe there are billions of dollars’ worth of annual cost-effective giving opportunities that we have yet to identify.

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Revisiting leverage

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.

Details follow.

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“Room for more funding” continued: Why donation restricting isn’t the easy answer

Yesterday we discussed the difficult question of “room for more funding”: how can a donor determine how more funding will translate to more activities? One common practice is to try to “force” your donation to fund the activities that attract you. Charities will formally honor your restriction by allocating your funds to the program in…

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Kiva and fungibility

David Roodman, whom we previously interviewed, has a very interesting post up about a specific microfinance vehicle, Kiva.org. Our existing report argues that donations through this sort of vehicle are likely “fungible,” and therefore better thought of (for impact purposes) as general support of organizations rather than as support of specific projects or people. Mr….

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