ALLISON SCHRAGER | THE MICROPHILANTHROPIST | December 3rd 2007

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Should you give a beggar what he thinks he wants, or what you think he needs? Allison Schrager solves the dilemma, in a new column that aims to explain how the non-rich can be effective philanthropists too ...

Special to MORE INTELLIGENT LIFE

As the days grow colder and the holiday season arrives, we feel more than usually moved to help the less fortunate. But if you do not have much to give, how can you most effectively contribute? On this snowy, cold December morning I look out my window and see a beggar who frequents my neighbourhood. How might I help him, and what is the best way to do so? Do I give him money, food, a blanket? Or would it be better to contribute to a local homeless shelter or charitable organisation dedicated to helping the homeless?

Being an economist, I am doomed to inject an extra degree of complexity into the question. First, consider the objective. What does it mean to help him? Do I wish to maximise the utility (roughly speaking, the sense of well-being) of the beggar—or the social utility, by doing what I think is in his best interest?

In all probability, maximising the beggar's utility is going to conflict with the social utility. The beggar's preference will surely be for a gift of money. But what if that fuels his addiction to drugs, or helps him eke out a life on the streets, when the social utility would be maximised by curing his addiction or getting him off the streets?

What if he suffers from an untreated and serious, mental illness, as do at least one-third of the homeless? By giving him money, I risk giving him an alternative to institutions where he could get treatment.

My libertarian sensibilities bristle at the thought that, if I want to help this man, I must specify conditions on how he leads his life. But should I take his begging as evidence that he cannot make good decisions—and so take social utility as my objective?

It reminds me of a beggar from my college days. I went to a university in a British city where heroin addicts were often on the streets begging for money. One in particular I got to know. Every day I would give him the change from my pocket as he excitedly described the outcome of a recent American football game. In the UK American football is only available on cable television, a pay service, so I did wonder where he saw these games.

One day I got my answer. He invited me back to his flat to watch a Cowboys game and have a "massage." I was deeply offended. Not by the inappropriateness of his offer, but by the realisation that not only did he have a home, he also had cable! I, who could not afford cable, was contributing to his cable bill. (Even that was probably better than funding his heroin addiction.)

I would like to see my current local beggar get the help he needs, and I recognise that giving him money may undermine this. But ultimately, I do not know his circumstances. And it is difficult to turn away from a freezing man on the street. I see him regularly, we often chat, and he says nice things about my shoes. He has invested in building a relationship with me, which makes me feel all the more compelled to help him. I rationalise giving money to buskers for the same reason. I am far more likely to give to people who I feel provide some social benefit—whether through their music, or just through being friendly. Effort is usually worth some monetary compensation.

In giving him money I just have to recognize that what improves the quality of his life, as he sees it, may well not be something that serves his long-term needs, as I see them. I can always tell him to save up for a warm coat, and he can agree, but the transaction ends there.

Alternatively, I could give him a non-tradable good that I think would benefit him, such as a warm meal. I could find a local shelter, make a donation, then suggest that he use it. But that would assume the shelter had the resources to help him, and that he was willing to go.

The best test may well be to imagine a reversal of roles, with me as the beggar and him as the passer-by. Would I want him to give me what I knew I wanted? Or what he thought I needed? The answer to that is relatively clear.