Thursday, October 13, 2011

The effectiveness of charity

For my Public Finance class, I have chosen to write a paper on the effectiveness of private charity versus the government antipoverty programs. My starting point is a working paper titled "Faith-based charity and crowd out during the great depression" available through NBER working paper series. The first assignment is to do a write a review of a working paper related to the topic we have chosen for our final paper. This working paper discusses how New Deal programs effected the existing faith-based charity with an emphasis on crowding out effects, i.e. how government spending on charity reduces private charity contributions.

The are two aspects to government antipoverty programs, often misreferred to as government charity. There are the in-kind transfer payments such as welfare and food stamps and there is public financing of private charity organizations.  The question becomes, what is more successful? Or does government programs create new problems that make both options inferior to private charity donations?

Direct payments to needy individuals can only be effective if there is an incentive to leave the program. Can bureaucrats be as effective as private charities in creating incentives for impoverished individuals to improve their lot? Does the rent seeking of faith-based charities due to government funding reduce their efficiency below that of privately funded charities? Can privately funded charities obtain enough funds to meet the needs of all the needy without some kind of subsidy?

In my paper I hope to be able to answer some or all of these questions. Ultimately, I would like to use this paper as part of my dissertation in which I would like to address each of these questions in far more detail. I am looking for resources that I could use that examine the question. I need papers, books or data sets that I can use for my analysis. Any suggestions that can be provided by my readers would be greatly appreciated.


Friar Tuck said...

Looks like an interesting topic and unfortunately I don't have anything to offer except a question or two.

I have a few concerns regarding a free market system, which I'm uncertain how to resolve, but it seems at least related to charity, so perhaps it would helpful to ask.

So, it seems that where there is no demand there is no supply. However, demand is not merely desire, but includes some level of purchasing power. I may desire to have a yacht, but because I make 40K a year, it ain't gonna happen anytime soon.

Thus, my concern regards the supply of things like food and medicine to impoverished people. Consider the example of an epidemic in a third world nation, but there exists some cure for the disease. However, since the people are largely impoverished they cannot afford the medicine, at least in sufficient quantities.

How does a free market system (or however you'd like to call it) ensure the respect of the dignity of persons over commodities? Can one make a distinction between goods that are necessary or life-saving and those that are just commodities or luxuries, without gravely hindering effective distribution of those human goods? Is it possible for the structures economy to take into account the dignity of the person over goods? Is charity a potentially effective means of doing this?

Friar Tuck said...

Also, I think the UN has some economic statistics if that helps. I haven't sorted through it, but it might be helpful.

Verl Humpherys said...

"it seems that where there is no demand there is no supply." This is not true. For example, look at agricultural waste. The non-edible parts of corn and wheat once existed as a supply without a demand. Without both supply and demand, there is no market. In both corn and wheat, demand was eventually created but the supply preceded the demand.

"demand is not merely desire, but includes some level of purchasing power." Correct. In economics, demand relates to desire for plus ability to afford. That is why demand curves are downward sloped, as price decreases, people can afford more and thus will demand more.

In a free market system, firms increase profits by increasing efficiency. This allows for the production of more with less by definition. Increased efficiency brings down the price of the commodities. Look at what happened when the government got involved in the production of the flu vaccine. Not that long ago, we had a shortage. We have to be careful about how government gets involved in production because of the distortions.

I am not sure if charity is the most effective way to help those in need. However, increasing taxes and giving lump sum payments or other forms of welfare create market distortions that could reduce the social welfare of future generations. Any attempt to help those in the present have to be weighed against the costs.

In order for charity to be effective, it must be structured such that those who do not need it, i.e. those who could provide for themselves, do not end up becoming dependent on it. The current welfare system seems to fail in that regard. My professor I am working with suggested a book which details how charity was done in the past where a person, in order to get donations, had to cut firewood for elderly widows who would not be able to fend for themselves.

Is charity effective? That is one of the questions I am trying to ask.