The Economics of the ALS Ice Bucket Challenge

In case you’ve been living under a rock for the last month or so, the ALS Ice Bucket Challenge has been a campaign to encourage donation to the ALS Association, an organization that provides support to those afflicted by amyotrophic lateral sclerosis (ALS) – also known as Lou Gehrig’s disease. The Ice Bucket Challenge has raised an enormous amount of money, and has many people talking about the economic principles behind donation – whether they realize it or not.

First, Vox helped to dispel the notion that people shouldn’t participate in the Ice Bucket Challenge because it’s a waste of water. In fact, compared to productive activities which use water, the ice bucket just doesn’t stack up. If, on average, 53 gallons of water are needed to produce one egg, and 978 gallons of water are needed to produce one gallon of milk, then dumping a 5 gallon bucket of water on yourself does little to save water compared to forgoing that omelette. Still, Matt Damon used the ice bucket challenge to bring attention to his charity, water.org, which helps increase and improve water access for the 800 million individuals around the world who lack a reliable, clean water supply.

Another question focuses on how donations to ALSA have been used. Many individuals are willing to give to charitable organizations based on the belief that their money will be used to address the cause they support- and not used to pay for marketing, employees, or logistics. In the case of ALS, many contributors who hoped to help “find a cure” for ALS were concerned when they discovered that roughly 30% of donations fund ALS research. What good was their donation if it wasn’t a part of the scientific effort to cure ALS?

Apart from the debate about the degree to which non-profits should offer high executive salaries to attract skilled individuals to run their operations (which I discuss with an accompanying video here), the mission of ALSA clearly includes public awareness campaigns and support for individuals with ALS. Here is a good breakdown from Vox: ALSA spends 14% of its revenue on fundraising efforts, while about 80% contributes to its primary goals of promoting scientific research (27%), public awareness (32%), and patient and community services (19%). Even though donors don’t want to think of their gift supporting fundraising efforts, contributing to fundraising efforts may help reel in large donors and increase the overall support for the cause.

Finally, there has been a response regarding the role of ALS itself: do “enough” people suffer from ALS to warrant such an explosion in giving toward this one cause? The question is not meant to trivialize those who have, or who know someone who has, ALS; rather, in a world where resources are scarce, where else could donations be going? Some ice bucket challenge participants may give to ALSA without altering their other commitments to charities; others, however, may be forced to cut back or trade donations from another cause to give to the ALS cause. Any donation has an opportunity cost – a dollar given to one cause cannot simultaneously be given to another cause – so, eventually, giving to ALSA may begin to crowd out donations to other causes.

There is an argument to be made that giving to other causes may help a larger number of individuals: a Vox graphic illustrates how our charitable giving doesn’t necessarily align with the diseases which are the greatest killers. Now, it may be because they receive so much that progress has been made and deaths related to, say, breast cancer, have declined. But it is important to consider the impact of a donation in a broader context. How many people are being helped, and by how much?

The role of the developing world is important here. Many charities aimed to help those in the developing world (like Water.org) can help a great number of people per dollar: donating to a charity to supply bed nets for malaria prevention, for example, can provide a one-hundred-fold impact (in terms of added quality-adjusted life years) over donating to ALSA. By asking how to get the most “bang for your donation buck,” some are questioning the efficiency of giving – are we (as a nation of donors) using our limited resources to help as many people as possible? Who should we help? Unfortunately, tradeoffs are necessary.

It can often be challenging to reconcile the psychology and the economics of donating, with what motivates donors to give and where those gifts would reap the greatest benefit. Nevertheless, a greater understanding of two prongs of charitable giving can go a long way in increasing the volume and efficacy of efforts to solve some of the world’s biggest problems.

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2 comments

  1. Caroline E · · Reply

    A balanced discussion. As someone who had a friend and also a cousin die of ALS (not an easy way to go), I really care about ALS research. Of course, you make good points about wanting charitable dollars to help the greatest number of people, but if ALS is shown to be tied to environmental toxins, we may expect to see more of it.

  2. I agree. Information is key.

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