We all know that an extra dollar is worth more to you the poorer you are. That's why it can be good to donate money to an organisation like GiveDirectly even when a few cents in the dollar get used up in transaction costs. But how much more is it worth? Economists have a good quantitative model of what is going on, which can enable us to make rough comparisons about whether, say, people on $1,000 per year would get more value from an extra $100 than people on $2,000 per year would get from $200. This can help us work out how much additional cost we should bear to get money to the very poorest people.
It can also be useful for improving our thinking about the relative values of different financial flows such as remittances and aid. It is easy to find out the sizes of these in dollars, but what about the size in terms of value to the individuals? If the individuals in one case are substantially richer, then this can really change things.
I've written an article explaining how all of this works up on centerforeffectivealtruism.org. Have a read and let me know what you think.
Something that will complicate the effects is that money given to people may increase not only consumption today but also consumption tomorrow through investment. This could be investments in physical capital (e.g. iron roof, livestocks) or human capital (e.g. health and education). Most of the time when people are given money, some will be consumed and some saved/invested (and consumption itself could have investment effects too, if better nutrition improves ability to work/learn), e.g. see Give Directly recipients.
This is relevant if we think that, for instance, poor people in Kenyan villages have more profitable investment opportunities than poor people in the US, for the cash they receive -- which is probably the case, e.g. there are many more opportunities to start small businesses in Kenyan villages (or higher returns to improving nutrition because they start at such a low level, though I remember "Poor Economics" says there's not much of evidence for a nutrition-based poverty trap, so probably not). In that case the benefits of giving cash to poor Kenyans (relative to giving to poor Americans) is further amplified. In fact in GiveWell's cost-effectiveness calculation for Give Directly, future increase in consumption is responsible for a substantial fraction of the effect (even with discounting) if we assume some persistence in investment returns (even if it's not compounded).