On the second paragraph, I don’t think it has been established that insuring clawback risk would be cheap in expectation. Also, in many cases, insurance increases the risk of a lawsuit or reduces the other side’s willingness to settle.
For example, suppose I think someone negligently breaks my leg and I am considering whether it is worthwhile to litigate. If I find out the person is an uninsured second-year philosophy grad student, I probably won’t bother—collecting any judgment will be very difficult, and a rational judgment debtor will just file for bankruptcy and get the debt wiped anyway. If the person is a middle-class tourist from the UK, I will probably find it worthwhile to sue if the damages are big enough and if I think there is a good enough chance I could collect on any judgment. Now, if I know that either of these people were insured, I am much more likely to sue, and I am not going to be willing to reduce a settlement demand based on doubts about collectability.
However, I think there is a good idea here. I would suggest there is a legal clawback risk and a “moral clawback risk”—that the grantee will be (and/or feel) ethically obliged to return some or all money although not legally required. Replacing some or all of the FTX-aligned funds seems to weigh the combined legal + moral clawback risk at 100%. Although offering insurance has some downsides, it does seem less expensive than unconditionally replacing the funds.
So there may be some conditions under which a funder would find it wortwhile to provide clawback insurance while it would not fund the project.
That sounds relatively straightforward as it comes to legal clawback risk; it is interesting to consider how “insurance” might work if the “insurer” were willing to provide some coverage for moral clawback risk. For those with certain beliefs about moral clawback, the grantee’s moral-clawback obligation or non-obligation can already be determined, so an “insurance” paradigm makes no sense. But for some of us, the nature and extent of a moral-clawback obligation depends on information that is not yet known.
Would the “insurer” decide the extent to which the ultimately determined facts create an ethical obligation to return funds? Or perhaps the “insurer” would offer 100% coverage for legal clawback risk and would allow the “insured” to decide moral clawback subject to a coinsurance requirement. For example, the “insurer” might only match the amount the “insured” was willing to voluntarily return out of its own pocket. That would address concerns that grantees may be too quick to find a moral-clawback obligation if the cost is coming entirely out of someone else’s pocket, and reduce the cost of providing “insurance.”
On the second paragraph, I don’t think it has been established that insuring clawback risk would be cheap in expectation. Also, in many cases, insurance increases the risk of a lawsuit or reduces the other side’s willingness to settle.
For example, suppose I think someone negligently breaks my leg and I am considering whether it is worthwhile to litigate. If I find out the person is an uninsured second-year philosophy grad student, I probably won’t bother—collecting any judgment will be very difficult, and a rational judgment debtor will just file for bankruptcy and get the debt wiped anyway. If the person is a middle-class tourist from the UK, I will probably find it worthwhile to sue if the damages are big enough and if I think there is a good enough chance I could collect on any judgment. Now, if I know that either of these people were insured, I am much more likely to sue, and I am not going to be willing to reduce a settlement demand based on doubts about collectability.
However, I think there is a good idea here. I would suggest there is a legal clawback risk and a “moral clawback risk”—that the grantee will be (and/or feel) ethically obliged to return some or all money although not legally required. Replacing some or all of the FTX-aligned funds seems to weigh the combined legal + moral clawback risk at 100%. Although offering insurance has some downsides, it does seem less expensive than unconditionally replacing the funds.
So there may be some conditions under which a funder would find it wortwhile to provide clawback insurance while it would not fund the project.
That sounds relatively straightforward as it comes to legal clawback risk; it is interesting to consider how “insurance” might work if the “insurer” were willing to provide some coverage for moral clawback risk. For those with certain beliefs about moral clawback, the grantee’s moral-clawback obligation or non-obligation can already be determined, so an “insurance” paradigm makes no sense. But for some of us, the nature and extent of a moral-clawback obligation depends on information that is not yet known.
Would the “insurer” decide the extent to which the ultimately determined facts create an ethical obligation to return funds? Or perhaps the “insurer” would offer 100% coverage for legal clawback risk and would allow the “insured” to decide moral clawback subject to a coinsurance requirement. For example, the “insurer” might only match the amount the “insured” was willing to voluntarily return out of its own pocket. That would address concerns that grantees may be too quick to find a moral-clawback obligation if the cost is coming entirely out of someone else’s pocket, and reduce the cost of providing “insurance.”