1 Septenber 2016
The QALY of mercy
How do we decide which charity to support?
by Frank O’Nomics
It was perhaps not the best time to attempt to apply economic theory to an everyday dilemma. I had just been given my change at a seaside convenience store and was looking to put in it one of the charity tins, normally an instinctive response that, if nothing else, saves wear and tear on trouser linings. But which tin to favour? Unusually there were four, and it struck me that deciding how to commit a few pence is less than straightforward if you pause to examine which is the most deserving charity. While a very minor decision in this instance, when we look at the more significant sums we donate to charity it becomes important if we are trying to generate the biggest impact from our benevolence. While “deserving” should not be confused with efficient – and charities which have a particular personal resonance because they address issues that have affected us in some way might be supported regardless of any measure of the relative impact that they have – I wondered whether it would be helpful to have a framework to help make a rational decision on economic grounds.
It is perhaps helpful to first look at the range of charities being offered to me. Not surprisingly, one was the RNLI, a charity I tend to favour because I spend some time on the water and know that they receive no government funding. Next to them was a tin for an animal sanctuary, which did not seem to have a specific beast in mind, although a picture of a donkey did feature. Here I have historically been less sympathetic, being inclined to favour charities that benefit mankind more directly. The other two tins were for a local hospice and a cancer research charity, so, across the four, I think there was a good representation of the charities favoured by regular givers.
You cannot just boil these decisions down to hard numbers, but I think it a good place to start, and the process is generally known as “effective altruism”. Economists have spent some time producing a measure called “quality adjusted life years” (QALYs) to try to measure how best to prioritise various health programmes, and this process can be applied to the charities above (apart perhaps from the animal sanctuary) quite readily. There are two ways in which charities can help mankind; either they can save someone’s life, or they can improve the quality of life, and the QALY combines them into one metric. If a drug treatment improves someone’s quality of life by 20% for their remaining 10 years, this equates to 2 QALY’s (0.2 x 10). Alternatively if their quality of life was deemed to be around 80% of ideal, but a drug extended their life by 10 years at the same level, this would be 8 QALY’s (0.8 x 10). Most measurements would feature a combination of the number of QALY’s generated by the improvement in the quality of life plus those resulting from an extension of lifespan. Not surprisingly, the difficulty comes when one tries to get reliable data with which to calculate the number of QALY’s that a £1 donation to any given charity could generate. Still, but we can make some calculated guesses.
Applying the process to the 4 charities generates some very different numbers and depends a lot on the assumptions made. People spend relatively short periods in a hospice (typically less than 6 months), but their quality of life is likely to be increased significantly for that time, while the length of their life will see little impact (1 month on average). The total number of QALYs may not be that high, but we would also need to add any increase the QALYs generated for family and friends by having their nearest and dearest in hospice care and this will increase the number of QALYs significantly. For the RNLI, it is much more about life saving and hence increasing life expectancy. Given that the average age of those the RNLI saves is quite young they will generate a lot of QALYs. This would suggest that the RNLI generates a bigger impact from donations than a hospice, but the number of people impacted by the RNLI is a mere fraction of those who receive the benefits of a hospice. The RNLI claims to rescue 22 people per day, but it is likely that some would have been rescued by the public and, even if you include them all, it is still just a fraction of the 120,000 people who benefit from hospice care each year. The other 2 charities are harder to generate calculations for, but the cancer research charity, if it produces an effective drug, can improve both the quality and duration of life significantly, and for a much greater number of people than will be saved by the RNLI or helped by a hospice. To compare it with the other 2 charities we would need to assign a probability to an effective treatment being developed, but the success over the last few decades suggests that this probability should be a reasonable one. The number of QALYs delivered in the short-term will be close to nil, but over a longer–term they could be infinite. As for the animal charity, the only we to generate a QALY estimate would be to ascribe the improvement in quality of life of humans that is generated by knowing that animals that were previously ill-treated or killed were living contentedly. For some people this will be very important, and I would not discourage them from giving accordingly, but for the majority I would suggest that the number of QALYs generated is difficult to measure.
Does this mean that we should be giving all of our money to charities like the RNLI, Air Ambulance etc, together with those that seek to cure major disease? The answer is of course no. There are many other factors that should be taken into account when deciding on the most effective form of altruism. Clearly the number of people that the charity touches is important, and medical research has a broader reach than rescue services. Secondly, it is helpful to know how cost effective the charity is, ie how much of your £1 is going towards its principle objective, and how much goes in administration. It is also worth knowing the track record of the charity too, for example, knowing that Action Medical Research helped to develop the first polio vaccines, ultrasound in pregnancy and the rubella vaccine, may encourage us to support them. Fourthly we need to have some idea of how much the charity needs the money. If it seems likely that, without our donation there would be sufficient pressure for government funding then we may be less inclined to help. There is also a limit to how much money a charity needs. The RNLI can only make use of so many lifeboats, and the number of people drowning off our coasts fell to 67 last year from 110 in 2013, while the need for hospice care is likely to grow with an ageing population. There is also a limit to how and how quickly a charity can make use of the funds – there are inevitable lead times to set up new projects.
Taking into account all of these other factors, the decision becomes far less easy. Boiling down your giving, planned or otherwise, to simple economics is helpful when the charities are easily comparable, but there are many motivations for charitable giving. By now, of course, the queue in the shop behind me is getting quite large – it would have been much easier if they had only offered one tin.
If you enjoyed this article please share it using the buttons above.
Please click here if you would like a weekly email on publication of the Shaw Sheet
