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             Donate Unrestricted

             March 2021

             The secret curse of the nonprofit world is restricted
             donations. If you haven't been involved with nonprofits, you
             may never have heard this phrase before. But if you have been,
             it probably made you wince.

             Restricted donations mean donations where the donor limits
             what can be done with the money. This is common with big
             donations, perhaps the default. And yet it's usually a bad
             idea. Usually the way the donor wants the money spent is not
             the way the nonprofit would have chosen. Otherwise there would
             have been no need to restrict the donation. But who has a
             better understanding of where money needs to be spent, the
             nonprofit or the donor?

             If a nonprofit doesn't understand better than its donors where
             money needs to be spent, then it's incompetent and you
             shouldn't be donating to it at all.

             Which means a restricted donation is inherently suboptimal.
             It's either a donation to a bad nonprofit, or a donation for
             the wrong things.

             There are a couple exceptions to this principle. One is when
             the nonprofit is an umbrella organization. It's reasonable to
             make a restricted donation to a university, for example,
             because a university is only nominally a single nonprofit.
             Another exception is when the donor actually does know as much
             as the nonprofit about where money needs to be spent. The
             Gates Foundation, for example, has specific goals and often
             makes restricted donations to individual nonprofits to
             accomplish them. But unless you're a domain expert yourself or
             donating to an umbrella organization, your donation would do
             more good if it were unrestricted.

             If restricted donations do less good than unrestricted ones,
             why do donors so often make them? Partly because doing good
             isn't donors' only motive. They often have other motives as
             well -- to make a mark, or to generate good publicity [1], or
             to comply with regulations or corporate policies. Many donors
             may simply never have considered the distinction between
             restricted and unrestricted donations. They may believe that
             donating money for some specific purpose is just how donation
             works. And to be fair, nonprofits don't try very hard to
             discourage such illusions. They can't afford to. People
             running nonprofits are almost always anxious about money. They
             can't afford to talk back to big donors.

             You can't expect candor in a relationship so asymmetric. So
             I'll tell you what nonprofits wish they could tell you. If you
             want to donate to a nonprofit, donate unrestricted. If you
             trust them to spend your money, trust them to decide how.





             Note

             [1] Unfortunately restricted donations tend to generate more
             publicity than unrestricted ones. "X donates money to build a
             school in Africa" is not only more interesting than "X donates
             money to Y nonprofit to spend as Y chooses," but also focuses
             more attention on X.

             Thanks to Chase Adam, Ingrid Bassett, Trevor Blackwell, and
             Edith Elliot for reading drafts of this.



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