My boyfriend's wonderful mother Martha wanted to show her support of my decision to go into development and specifically to spend my summer in Liberia.  Late last July, she sent an email with a gesture of her support and admiration. She would give money to whatever cause I wanted it Liberia.

I was touched, of course.  What wasn't obvious as I read her email was how eye opening the decision process that ensued would be.  For the first time I actually had the philanthropist hat on.  I didn't want the money to go into a "black hole" (i.e. to just give it to a fund or an organization without knowing exactly what it would go to), which meant that I wasn't going to entrust an organization with much better local information to allocate my resources.  I wanted it to be tangible -- "that thing right there... I made that happen."  I wanted it to go to a cause that resonated with Martha and something that I, with my limited understanding of Liberia's needs, felt would maximize impact.  I wasn't going to feel right about using this money unless those requirements were met. 

Which brings me to my point.  We're always talking about inefficiencies in aid - which assumes that what we are optimizing for incremental welfare as an omniscient entity.  Hardly.  A huge constraint on development decisions is the need to optimize for those providing the funds.  This takes us far from efficient allocation of resources if we're defining that as maximizing incremental welfare for the poor.  Given that donors will always constrain these allocation decisions, it might be useful to remember that an inherent inefficiency exists within the system when we decry the inefficiency of the status quo. 

Can we do better?  Yes.  How?  Better information.  Collecting and sharing data will enabling decisions to be made based upon fact-based analysis.  Monitoring and evaluation will bring clarity on what works, helping to align donor requirements with social optimal decision making.  But at the end of the day, philanthropists are always going be biased towards pet causes and big donors are always going to face politics. 

From the perspective of the welfare of the poor, the system is and will always be inherently inefficient.  If you still disagree, I ask you to tell me how you'd spend a few thousand dollars if it was suddenly handed to you.