I’m confused why there are several people apparently excited about this idea. It strikes me that impact finance so obviously outperforms impact purchases. So much so that I’m worried that I must be misunderstanding impact purchases.
Impact finance solves both of the stark problems of impact purchases:
(a) if the people doing the work only receive money after the event, how do they live?
(b) what incentive do purchasers of impact certificates have to purchase?
I perhaps need to clarify what I meant by Impact Finance. Given that this risks being confused with Impact Investment, I’ll rename it to Conditional Impact Finance.
Conditional Impact Finance occurs when a Project receives funding involving a Conditional Donor and an Impact Investor as follows:
(1) The Conditional Donor (who may be a pool of donors) agrees to fund the Project *on the condition* that they achieve a certain outcome
(2) The funds needed + a bonus go into escrow. If the outcome is achieved the funds are paid out, if not they are returned to the donor.
(3) In order that the Project receives the funds it needs to proceed with the work, it receives funding from an Impact Investor (or a pool of investors).
Further notes:
(1) Examples of conditions (fictional):
“The ABC innovative education Project will receive funding if a longitudinal RCT shows that employment rates among beneficiaries are at least 15% higher than control in 15 years’ time”
“The DEF malaria Project will receive funding if the malaria-linked mortality rate in Busia, Kenya is better than a control under a RCT conducted by LSHTM”
(2) A bonus is needed primarily to pay the interest on the debt (although perhaps a bonus for the staff might be a good idea too)
(3) If the project fails, the impact investor loses out. This means that all the incentives that currently apply to financial markets now apply to impact.
I consider this better for any reasonably sized project. If we are thinking of just one person doing some work on their own, I could imagine Impact Purchase maybe having some value.
This is very similar to this notion of impact prizes. The main difference there seems to be that there is a specific allotted sum of money for a variety of possible possible projects, which share that allotted amount proportionally to their estimated impact.
I think that the downside of impact prizes compared to Conditional Impact Finance is mainly that it is much more volatile for investors—both because of dependencies between different projects and somewhat due to the continuum of possible values of estimated impact. Also, it is much harder on the donors. Well, there is also the problem that it may be clear that other competing projects are closing in on something much better (9x is enough to limit the prize to 10% of the original amount), and also competing interests between projects.
The major upside of impact prizes seems to be that the incentives of the project is better aligned with maximizing impact because they get a prize which scales sort of linearly with impact (unless they are enormously successful).
Impact purchases are one way of creating more impact finance. In particular, they can make it worthwhile for non-altruistic financiers to fund altruistic projects. This is particularly beneficial in cases where it’s hard for a single altruist to evaluate all the people who want funding.
With regard to (b), the incentives for impact purchasers are roughly similar to the incentives of someone who’s announced a prize. In both cases, the payer create incentives for others to do the work that will lead to payouts.
I’m confused by this response. I answered all of this in the blogpost. Did I fail to communicate? I am not saying that you have to agree, but if you read what I wrote and still don’t understand why *I* think some times paying after a project is a good idea, that is confusing to me, and I would like to understand better what part of the blogpost you found confusing.
I’m confused why there are several people apparently excited about this idea. It strikes me that impact finance so obviously outperforms impact purchases. So much so that I’m worried that I must be misunderstanding impact purchases.
Impact finance solves both of the stark problems of impact purchases:
(a) if the people doing the work only receive money after the event, how do they live?
(b) what incentive do purchasers of impact certificates have to purchase?
I perhaps need to clarify what I meant by Impact Finance. Given that this risks being confused with Impact Investment, I’ll rename it to Conditional Impact Finance.
Conditional Impact Finance occurs when a Project receives funding involving a Conditional Donor and an Impact Investor as follows:
(1) The Conditional Donor (who may be a pool of donors) agrees to fund the Project *on the condition* that they achieve a certain outcome
(2) The funds needed + a bonus go into escrow. If the outcome is achieved the funds are paid out, if not they are returned to the donor.
(3) In order that the Project receives the funds it needs to proceed with the work, it receives funding from an Impact Investor (or a pool of investors).
Further notes:
(1) Examples of conditions (fictional):
“The ABC innovative education Project will receive funding if a longitudinal RCT shows that employment rates among beneficiaries are at least 15% higher than control in 15 years’ time”
“The DEF malaria Project will receive funding if the malaria-linked mortality rate in Busia, Kenya is better than a control under a RCT conducted by LSHTM”
(2) A bonus is needed primarily to pay the interest on the debt (although perhaps a bonus for the staff might be a good idea too)
(3) If the project fails, the impact investor loses out. This means that all the incentives that currently apply to financial markets now apply to impact.
I consider this better for any reasonably sized project. If we are thinking of just one person doing some work on their own, I could imagine Impact Purchase maybe having some value.
I believe this is what is being done by alice.si
This is very similar to this notion of impact prizes. The main difference there seems to be that there is a specific allotted sum of money for a variety of possible possible projects, which share that allotted amount proportionally to their estimated impact.
I think that the downside of impact prizes compared to Conditional Impact Finance is mainly that it is much more volatile for investors—both because of dependencies between different projects and somewhat due to the continuum of possible values of estimated impact. Also, it is much harder on the donors. Well, there is also the problem that it may be clear that other competing projects are closing in on something much better (9x is enough to limit the prize to 10% of the original amount), and also competing interests between projects.
The major upside of impact prizes seems to be that the incentives of the project is better aligned with maximizing impact because they get a prize which scales sort of linearly with impact (unless they are enormously successful).
Impact purchases are one way of creating more impact finance. In particular, they can make it worthwhile for non-altruistic financiers to fund altruistic projects. This is particularly beneficial in cases where it’s hard for a single altruist to evaluate all the people who want funding.
With regard to (b), the incentives for impact purchasers are roughly similar to the incentives of someone who’s announced a prize. In both cases, the payer create incentives for others to do the work that will lead to payouts.
I’m confused by this response. I answered all of this in the blogpost. Did I fail to communicate? I am not saying that you have to agree, but if you read what I wrote and still don’t understand why *I* think some times paying after a project is a good idea, that is confusing to me, and I would like to understand better what part of the blogpost you found confusing.