Pro Bono Economics

UK charities make little use of the professional skills of economists. In this article, Martin Brookes and Andrew G Haldane1 look at why this is the case and outline an exciting new project to broker economists into the charitable sector. Volunteers welcome!

Charities and Economics – A Missing Market?
Few charities currently either employ or consistently make use of economists.  And, in our experience, relatively few economists have considered applying their skills within the charitable sector. This, we believe, is a market failure — indeed, to all intents and purposes, it is a missing market.  Why is this market missing? And what might be done to address it?

On the first question, there appear to be essentially two explanations: cost externalities; and (two-sided) information failures. On cost externalities, the vast majority of charities cannot afford to pay for in-house — or indeed outsourced — economists. The market price of economists is set within the private and public sectors, at levels well above the ‘going rate’ within the charitable sector. Partly as a result, there is also a lack of career opportunities for economists within charities. And there is no real consultancy offering advisory services to charities. This cost argument seems to be one of the key reasons why other professions, whose reservation wage is set within the private sector, operate pro bono programmes — lawyers, management consultants, accountants etc.

If the argument were purely cost, then there would not be a market failure. The high prices of economists set in the public and private sectors would simply be a pecuniary externality so far as charities were concerned. One could argue that greater funding of the charitable sector was the best solution in this case. But there can also be a positive externality to the services provided by economists, which implies a market failure. 

The value of a piece of economic analysis to an individual charity depends on the needs of that organisation.  But its public value may be much greater if other charities could use the same analysis themselves — for example, in the area of data collection or measurement of results. In this situation, the societal value of a piece of research exceeds what the individual charity itself would be willing to pay — a classic externality.  And even if the charity had more resources, it would still not be in its interests to buy as much economic analysis as the public interest would want.

On informational failures, these appear at present to infect both the demand (charity) and supply (economics) side of the equation. On the demand side, it appears from our experience that many charities do not understand or appreciate the value of economic analysis to their business and so do not seek it. And on the supply side, many economists do not realise that their skill-sets would be valuable in addressing questions such as measuring the broader (economic and/or social) impact of charities’ work. With neither demand nor supply well articulated, the upshot is a largely missing market. There are a few isolated examples of economists helping charities on a pro bono basis with problems of measurement and articulation of ‘return’. But, to date, these experiments have been the exception rather than the rule. Moreover, it is worth noting that the absence of economic analysis also applies within large charities who often have more resources and better access to pro bono support.

Meanwhile, within the third sector there is a growing recognition of the problems caused by a lack of measurement and analytical evidence. The Office of the Third Sector in the Cabinet Office has noted this and, together with the Economic and Social Research Council, funded a new Third Sector Research Centre at Birmingham and Southampton Universities. This suggests there is growing awareness that charitable work can have wider social and economic benefits.  We strongly believe that quantitative evaluation by economists can help in measuring those benefits and in determining the most effective ways of channelling support to achieve them.

Filling the Missing Market
To that end, we have set up a new charity — Pro Bono Economics (PBE). Its aim is to broker economists into the charitable sector to help on short and medium-term assignments, typically addressing questions around measurement, results and impact. More specifically, PBE seeks to address directly the market failures which have resulted in this missing market by:

• brokering economists into the charitable sector on a pro bono basis - thereby addressing the cost problem;

• acting as a matching agency, and as a more general source of information about the use of economics in the charitable sector, between charities and economists — thereby addressing the information problem.

In this way, PBE aims to kick-start a market in economic services to charities.

An economist might reason that the availability of free economic advice could undermine the development of a viable market. The role of PBE might in this sense be no more than catalytic. On the other hand, it is worth noting that in other professions – such as law and management consultancy — paid advice for charities has tended to exist alongside pro bono support. At a minimum, the high cost of economic advice will limit the development of the market and may provide a continuing rationale for pro bono support.

One deliberate intention of PBE is to equip charities with the tools to do more economic analysis themselves. Engaging with the projects and the economists will hopefully leave a lasting legacy of understanding about economics within the charitable sector. PBE may seek to train charity staff in economic analysis to support this capacity-building. And PBE is committed to publishing the results of the individual projects it undertakes and sharing these with other charities. This is recognition of the fact that there is likely to be considerable ‘learning by doing’ in a fledgling market and significant increasing returns to scale in the provision of economic research directed at charities. 

PBE has been lucky enough to receive the endorsement and support of the Government Economic Service, representing over 1,000 economists working within government departments. This support will be invaluable in helping supply economists into the charitable sector. Using this resource pool, PBE has recently commenced a sequence of pilot projects working alongside four charities. Details of these projects are given in the two boxes. These projects are intended to serve as proof of concept, before rolling PBE out to a wider set of charities. These projects are already showing encouraging signs of bearing fruit. A number of other pilot projects are also in gestation.

PBE will be launched formally at the end of September at HM Treasury. We have been able to attract a number of high profile patrons from across the economics profession. The next stage will be to roll out PBE services across the charitable sector. With that in mind, we are seeking now expressions of interest from volunteer individuals or organizations from across the economics profession. The membership of the Royal Economics Society represents a lucrative pool of potential volunteers, to complement the Government Economic Service pool.

Volunteering comes with no commitment beyond a willingness to consider PBE projects as these become available. Volunteering might amount to little more than reviewing a PBE project’s outputs; or it might involve carrying out a PBE project of several months duration from start to finish, albeit typically conducted as flexibly as the volunteer requires.

Details about PBE, and specifically about volunteering, are available at our website
www.probonoeconomics.com;
or if you wish to contact us directly, you can do so at: info@probonoeconomics.com.

We turn now to two projects in which Pro Bono Economics is already engaged.

Assessing the costs of child sexual exploitation — by Greg Thwaites2

Upwards of 3,000 children in the UK are sexually exploited – coerced into sexual activity in exchange for money, food or drugs. This form of abuse is now recognised to be a major public health challenge around the industrialised world, as well as a question of social welfare and basic human rights.3 It can severely affect the life chances of those affected, in terms of morbidity, low educational attainment, and association with crime.4 This in turn generates substantial costs for the taxpayer and society.

The children’s charity Barnardos runs a network of 19 service centres around the UK that work with children at risk of sexual exploitation. Previous studies have found that this work is associated with a reduction in the risk of sexual exploitation5 and recommended further funding for the work.6

However, no study to date has attempted to quantify systematically the fiscal and social savings generated by Barnardo’s programme. Reliable figures would assist the allocation of scarce resources within the service provider, and perhaps strengthen their case for public and private support.

So Pro Bono Economics is working with Barnardo’s researchers to come up with such an estimate. The approach they are taking has two main legs:

• Estimating the costs to the taxpayer of sexual exploitation, principally by matching data from interviews with Barnardos service providers to government data on the costs of health, educational and judicial outcomes and interventions; and

• Employing a new statistical method to estimate the impact of Barnardos’ interventions in reducing these costs.

The project will also aim to contribute to the in-house analytical capabilities of Barnardos, and provide a template for future research in this area.

Assessing the Value of Non Cognitive Skills — by Lucy Heady7

Traditionally, economists have thought about human capital in terms of so-called ‘cognitive skills’ such as reading and mathematical ability. However, over the last decade or so analysis of longitudinal data has shown that non-cognitive skills such as self-esteem and a sense of control can be as, if not more, important for adult outcomes as cognitive skills (Heckman et al (2006), Carneiro et al (2007)).8 These outcomes include employment, income, risk-taking behaviour and depression.

Both non-cognitive and cognitive skills are strongly dependent on family background but there is evidence to suggest that non-cognitive skills may be easier to influence than cognitive skills (Carneiro et al (2007)). Furthermore, intergenerational transmission of non-cognitive skills has increased and is contributing to the decrease in social mobility (Blanden et al, 2006).9

The policy implication is that interventions aimed at improving the non-cognitive skills of the most deprived are a promising target for improving life chances for these children and increasing social mobility. Indeed, concentrating on non-cognitive skills may have higher returns than attempting to boost children’s cognitive skills directly.

For Pro Bono Economics’ second pilot, three economists have gone into three different charities all working in some way towards improving children’s non-cognitive skills.

The charity Chance UK provides a structured mentoring programme for children between 5 and 11, providing troubled children with more stability and reducing isolation. It works mainly in London.

The Place2Be provides a drop-in service for children where they can talk about whatever is worrying them and is currently in more than 100 schools across the country.

The Brandon Centre provides services for 12 to 25 year olds in North London who are experiencing mental health problems and have contraception and sexual health needs.

The economists are analysing the data from the three charities and linking them to the demonstrated benefits from improved non-cognitive skills. Further analysis may also look at the long-term cost-effectiveness of the charities.


Notes:

1. Martin Brookes is chief executive of the charity, New Philanthropy Capital. Andrew G Haldane is Executive Director, Financial Stability, at the Bank of England.

2. Greg Thwaites is an economist at the Bank of England and is leading the project with Barnardo’s on behalf of Pro Bono Economics.

3. See e.g. Gilbert et al. (2008), ‘Burden and consequences of child maltreatment in high-income countries’, The Lancet Vol 373 and Willis B M and Levy B S (2002) ‘Child prostitution: global health burden, research needs, and interventions’, The Lancet vol 359

4. See e.g. the work of Nobel economics laureate James Heckman at http://jenni.uchicago.edu/human-inequality/

5. Scott S and P Skidmore (2006), ‘Reducing the risk: Barnardo’s support for sexually exploited young people’, Barnardo’s.

6. ‘Barnardo’s Sexual Exploitation Services’, New Philanthropy Capital, December 2008

7. Lucy Heady is Head of Measurement at New Philanthropy Capital and is a trustee of Pro Bono Economics.

8. ‘The Effects of Cognitive and Non-Cognitive Abilities on Labour Market Outcomes and Social Behaviour’, J Heckman, J Stixrud and S Urzua, University of Chicago, 2007; ‘The Impact of Early Cognitive and Non-Cognitive Skills on Later Outcomes’, P Carneiro, C Crawford and A Goodman, Centre for Economics of Education, October, 2007,

9. ‘Accounting for Intergenerational Income Persistence: Non-Cognitive Skills, Ability and Education’, Centre for Economics of Eduction, September 2006.




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