It’s a defection against other charities that would be more effective at the margin than your charity. It’s a bit unclear what a funding gap is supposed to be, but let’s use the definition GiveWell uses for itself: “We seek to be in a financial position such that our cash flow projections show us having 12 months’ worth of unrestricted assets in each of the next 12 months.”
Highly effective charities probably have huge ROI, and even the last bits of the above assets, even when they are kept on a bank account, may still reduce risks to the point of being better investments than a stock portfolio. But at least when a donor swamps a charity with so much money that it exceeds even a funding gap as defined above, the charity will need to put the excess money into a portfolio and will earn just the usual ~ 5% p.a.
At this point the marginal utility has dropped so far that it’s likely that another charity would’ve been able to use the money better.
If the funder is known to be capricious and might buy a yacht from the remainder if you don’t lie about your funding gap (a.k.a. use some suitably wide definition), then other charities will understand your predicament. But with a smart, value-aligned funder, such a move will signal defection, and defection is best countered by defection (Robert Axelrod’s tit for tat algorithm) in repeated prisoner’s dilemmata, so that we’ll end up with a space where all the charities are just busy keeping each other down.
In the case of Open Phil, this is mitigated by the abundance of funding that Open Phil has available. The prisoner’s dilemma is a product of relative scarcity, so greater abundance ameliorates it.
If a charity thinks that its excess cash would be better off with another charity than sitting in its bank account, wouldn’t it just give the cash to another charity? And this is at least as good from the charity’s perspective as letting the original donor decide what to do with the excess funds.
Yes, I premised my argument above (in the comment from August 27) on that not being possible. In Germany I think foundations can forward donations like that, but I think it’s more complicated or only possible in some cases for other types of nonprofits. I just saw online that US 501(c)(3) charities can forward donations under certain conditions that didn’t seem too hard to meet. So if the donor is fine with it, that should be a perfectly cooperative option.
Actually, in the case of Open Phil, such things could be discussed beforehand, and if the charity is up for it and can legally do it, then Open Phil–recommended grants could snowball through the space, saving time on the Open Phil side and possibly even reaching a number of highly effective niche charities that would’ve been too small to warrant Open Phil’s attention.
It’s a defection against other charities that would be more effective at the margin than your charity. It’s a bit unclear what a funding gap is supposed to be, but let’s use the definition GiveWell uses for itself: “We seek to be in a financial position such that our cash flow projections show us having 12 months’ worth of unrestricted assets in each of the next 12 months.”
Highly effective charities probably have huge ROI, and even the last bits of the above assets, even when they are kept on a bank account, may still reduce risks to the point of being better investments than a stock portfolio. But at least when a donor swamps a charity with so much money that it exceeds even a funding gap as defined above, the charity will need to put the excess money into a portfolio and will earn just the usual ~ 5% p.a.
At this point the marginal utility has dropped so far that it’s likely that another charity would’ve been able to use the money better.
If the funder is known to be capricious and might buy a yacht from the remainder if you don’t lie about your funding gap (a.k.a. use some suitably wide definition), then other charities will understand your predicament. But with a smart, value-aligned funder, such a move will signal defection, and defection is best countered by defection (Robert Axelrod’s tit for tat algorithm) in repeated prisoner’s dilemmata, so that we’ll end up with a space where all the charities are just busy keeping each other down.
In the case of Open Phil, this is mitigated by the abundance of funding that Open Phil has available. The prisoner’s dilemma is a product of relative scarcity, so greater abundance ameliorates it.
If a charity thinks that its excess cash would be better off with another charity than sitting in its bank account, wouldn’t it just give the cash to another charity? And this is at least as good from the charity’s perspective as letting the original donor decide what to do with the excess funds.
Yes, I premised my argument above (in the comment from August 27) on that not being possible. In Germany I think foundations can forward donations like that, but I think it’s more complicated or only possible in some cases for other types of nonprofits. I just saw online that US 501(c)(3) charities can forward donations under certain conditions that didn’t seem too hard to meet. So if the donor is fine with it, that should be a perfectly cooperative option.
Actually, in the case of Open Phil, such things could be discussed beforehand, and if the charity is up for it and can legally do it, then Open Phil–recommended grants could snowball through the space, saving time on the Open Phil side and possibly even reaching a number of highly effective niche charities that would’ve been too small to warrant Open Phil’s attention.