Fungibility can add inefficiency even if it doesn't make a huge difference in the totals spent. For example, a friend of mine used to work for an environmental

Fungibility can add inefficiency even if it doesn't make a huge difference in the totals spent. For example, a friend of mine used to work for an environmental agriculture non-profit. A large donation had been made that could only be spent buying trees to plant. Now, they planted a lot of trees as part of their work anyways so this seems reasonable. The problem was that it did not cover the labor of planting the trees, tools for planting the trees, or many related costs. In practice, it took them many years to spend all this money across many projects, when an unrestricted donation would have probably had more positive effects sooner. Moreover, they had to track how much was spent on trees separately for every project so that it could be properly accounted for against this restricted donation, which of course added administrative overhead.