Good point about how the optimal charity can change. I think there’s even more to it than this though: not only does charity estimated cost-effectiveness change exogenously over time, but making multi-year commitments can make it worse. If charities can rely on long-term funding, they have less incentive to act in accordance with donor’s wishes. Conversely, by instead providing repeated short-term finances, donors can ensure the charity does not stray too far from their intentions.
In markets this is not required because shareholders do actually have control over the corporation through their right to elect the board of directors. But donors rarely have this right, so need to rely on other mechanisms to ensure their capital isn’t wasted.
This might not seem to be a huge issue with some charities that basically just do one thing, but other charities have changed their focus considerably over time, in many times against the wishes of some prior donors, whose funds are thereby expropriated.
I appreciate these points. In the future, I intend to post to this blog guides for how donors can maintain good relations with charities, and visa-versa. I’ll try remembering to include your points in that guide. For the record, the guide(s) will probably not be up for at least a month.
Good point about how the optimal charity can change. I think there’s even more to it than this though: not only does charity estimated cost-effectiveness change exogenously over time, but making multi-year commitments can make it worse. If charities can rely on long-term funding, they have less incentive to act in accordance with donor’s wishes. Conversely, by instead providing repeated short-term finances, donors can ensure the charity does not stray too far from their intentions.
In markets this is not required because shareholders do actually have control over the corporation through their right to elect the board of directors. But donors rarely have this right, so need to rely on other mechanisms to ensure their capital isn’t wasted.
This might not seem to be a huge issue with some charities that basically just do one thing, but other charities have changed their focus considerably over time, in many times against the wishes of some prior donors, whose funds are thereby expropriated.
I appreciate these points. In the future, I intend to post to this blog guides for how donors can maintain good relations with charities, and visa-versa. I’ll try remembering to include your points in that guide. For the record, the guide(s) will probably not be up for at least a month.
Sounds like a good topic for a post; I look forward to it.