Friday, September 24, 2010

The incentive mismatch with private donations

Just thinking. There is a fundamental incentive mis-alignment with philanthropic donations in general. The lion's share of the donor's personal satisfaction comes from the act of giving. Once the personal moment is past and the major portion of happiness is dissipated, the donors have limited interest in the subsequent outcomes. The graphic below captures the donor's satisfaction profile with respect to time.

In simple terms, since the act of giving is separated from the achievement of the outcome, and since the donor's interest is mostly concentrated at the former, there exists a strong likelihood that the latter could fall short on the original (for which the donation was made) objective. This may, atleast partially, explain why so much of private donations and aggregated private aid is mismanaged and often wasted.

1 comment:

sai prasad said...

Like u observed, philanthropy seems to of two types. The doers and the givers. Best results are observed in cases where both roles are combined.

When they are not combined, it is essential to have good doers to ensure the best bang for the buck.

However, we also need a good bit of the givers around too.