I want to push back against a possible interpretation of this moderately strongly.
If the charity you are considering starting has a 40% chance of being 2x better than what is currently being done on the margin, and a 60% chance of doing nothing, I very likely want you to start it, naive 0.8x EV be damned. I could imagine wanting you to start it at much lower numbers than 0.8x, depending on the upside case. The key is to be able to monitor whether you are in the latter case, and stop if you are. Then you absorb a lot more money in the 40% case, and the actual EV becomes positive even if all the money comes from EAs.
If monitoring is basically impossible and your EV estimate is never going to get more refined, I think the case for not starting becomes clearer. I just think that’s actually pretty rare?
From the donor side in areas and at times where I’ve been active, I’ve generally been very happy to give ‘risky’ money to things where I trust the founders to monitor and stop or switch as appropriate, and much more conservative (usually just not giving) if I don’t. I hope and somewhat expect other donors are willing to do the same, but if they aren’t that seems like a serious failure of the funding landscape.
I agree with giving more weight to upside when you can monitor results effectively and shut down if things don’t go well, but you can actually model all of this explicitly. Maybe the model will be too imprecise to be very useful in many cases, but sensitivity analysis can help.
You can estimate the effects in the case where things go well and you scale up, and in the case where you shut down, including the effects of diverting donations from effective charities in each case, and weight the conditional expectations by the probabilities of scaling up and shutting down. If I recall correctly, this is basically what Charity Entrepreneurship has done, with shutdown within the first 1 or 2 years in the models I looked at. Shutting down minimizes costs and diverting of funding.
You wouldn’t start a charity with a negative expected impact after including all of these effects, including the effects of diverting funding from other charities.
I agree that in principle that you could model all of this out explicitly, but it’s the type of situation where I think explicit modelling can easily get you into a mess (because there are enough complicated effects that you can easily miss something which changes the answer), and also puts the cognitive work in the wrong part of the system (the job of funders is to work out what would be the best use of their resources; the job of the charities is to provide them with all relevant information to help them make the best decision).
I think impact markets (implicit or otherwise) actually handle this reasonably well. When you’re starting a charity, you’re considering investing resources in pursuit of a large payoff (which may not materialise). Because you’re accepting money to do that, you have to give up a fraction of the prospective payoff to the funders. This could change the calculus of when it’s worth launching something.
This kind of externality should be accounted for by the market (although it might be that the modelling effectively happens in a distributed way rather than anyone thinking about it all).
So you might get VCs who become expert in judging when early-stage projects are a good bet. Then people thinking of starting projects can somewhat outsource the question to the VCs by asking “could we get funding for this?”
Hmm, I’m kind of skeptical. Suppose there’s a group working on eliminating plastic straws. There’s some value in doing that, but suppose that just the existence of the group takes attention away from more effective environmental interventions to the point that it does more harm than good regardless of what (positive) price you can buy its impact for. Would a market ensure that group gets no funding and does no work? Would you need to allow negative prices? Maybe within a market of eliminating plastic waste, they would go out of business since there are much more cost-effective approaches, but maybe eliminating plastic waste in general is a distraction from climate change, so that whole market shouldn’t exist.
So you might get VCs who become expert in judging when early-stage projects are a good bet. Then people thinking of starting projects can somewhat outsource the question to the VCs by asking “could we get funding for this?”
It sounds like VCs would need to make these funding diversion externality judgements themselves, or it would be better if they could do them well.
Yeah, I totally agree that if you’re much more sophisticated than your (potential) donors you want to do this kind of analysis. I don’t think that applies in the case of what I was gesturing at with “~community projects”, which is where I was making the case for implicit impact markets.
Assuming that the buyers in the market are sophisticated:
in the straws case, they might say “we’ll pay $6 for this output” and the straw org might think “$6 is nowhere close to covering our operating costs of $82,000” and close down
I think too much work is being done by your assumption that the cost effectiveness can’t be increased. In an ideal world, the market could create competition which drives both orgs to look for efficiency improvements
I’m guessing 2 is in response to the example I removed from my comment, roughly starting a new equally cost-effective org working on the same thing as another org would be pointless and create waste. I agree that there could be efficiency improvements, but now we’re asking how much and if that justifies the co-founders’ opportunity costs and other costs. The impact of the charity now comes from a possibly only marginal increase in cost-effectiveness. That’s a completely different and much harder analysis. I’m also more skeptical of the gains in cases where EA charities are already involved, since they are already aiming to maximize cost-effectiveness.
I want to push back against a possible interpretation of this moderately strongly.
If the charity you are considering starting has a 40% chance of being 2x better than what is currently being done on the margin, and a 60% chance of doing nothing, I very likely want you to start it, naive 0.8x EV be damned. I could imagine wanting you to start it at much lower numbers than 0.8x, depending on the upside case. The key is to be able to monitor whether you are in the latter case, and stop if you are. Then you absorb a lot more money in the 40% case, and the actual EV becomes positive even if all the money comes from EAs.
If monitoring is basically impossible and your EV estimate is never going to get more refined, I think the case for not starting becomes clearer. I just think that’s actually pretty rare?
From the donor side in areas and at times where I’ve been active, I’ve generally been very happy to give ‘risky’ money to things where I trust the founders to monitor and stop or switch as appropriate, and much more conservative (usually just not giving) if I don’t. I hope and somewhat expect other donors are willing to do the same, but if they aren’t that seems like a serious failure of the funding landscape.
Evidence Action are another great example of “stop if you are in the downside case” done really well.
I agree with giving more weight to upside when you can monitor results effectively and shut down if things don’t go well, but you can actually model all of this explicitly. Maybe the model will be too imprecise to be very useful in many cases, but sensitivity analysis can help.
You can estimate the effects in the case where things go well and you scale up, and in the case where you shut down, including the effects of diverting donations from effective charities in each case, and weight the conditional expectations by the probabilities of scaling up and shutting down. If I recall correctly, this is basically what Charity Entrepreneurship has done, with shutdown within the first 1 or 2 years in the models I looked at. Shutting down minimizes costs and diverting of funding.
You wouldn’t start a charity with a negative expected impact after including all of these effects, including the effects of diverting funding from other charities.
I agree that in principle that you could model all of this out explicitly, but it’s the type of situation where I think explicit modelling can easily get you into a mess (because there are enough complicated effects that you can easily miss something which changes the answer), and also puts the cognitive work in the wrong part of the system (the job of funders is to work out what would be the best use of their resources; the job of the charities is to provide them with all relevant information to help them make the best decision).
I think impact markets (implicit or otherwise) actually handle this reasonably well. When you’re starting a charity, you’re considering investing resources in pursuit of a large payoff (which may not materialise). Because you’re accepting money to do that, you have to give up a fraction of the prospective payoff to the funders. This could change the calculus of when it’s worth launching something.
Would impact markets be useful without people doing this kind of modeling? Would they be at risk of assuming away these externalities otherwise?
This kind of externality should be accounted for by the market (although it might be that the modelling effectively happens in a distributed way rather than anyone thinking about it all).
So you might get VCs who become expert in judging when early-stage projects are a good bet. Then people thinking of starting projects can somewhat outsource the question to the VCs by asking “could we get funding for this?”
Hmm, I’m kind of skeptical. Suppose there’s a group working on eliminating plastic straws. There’s some value in doing that, but suppose that just the existence of the group takes attention away from more effective environmental interventions to the point that it does more harm than good regardless of what (positive) price you can buy its impact for. Would a market ensure that group gets no funding and does no work? Would you need to allow negative prices? Maybe within a market of eliminating plastic waste, they would go out of business since there are much more cost-effective approaches, but maybe eliminating plastic waste in general is a distraction from climate change, so that whole market shouldn’t exist.
It sounds like VCs would need to make these funding diversion externality judgements themselves, or it would be better if they could do them well.
Yeah, I totally agree that if you’re much more sophisticated than your (potential) donors you want to do this kind of analysis. I don’t think that applies in the case of what I was gesturing at with “~community projects”, which is where I was making the case for implicit impact markets.
Assuming that the buyers in the market are sophisticated:
in the straws case, they might say “we’ll pay $6 for this output” and the straw org might think “$6 is nowhere close to covering our operating costs of $82,000” and close down
I think too much work is being done by your assumption that the cost effectiveness can’t be increased. In an ideal world, the market could create competition which drives both orgs to look for efficiency improvements
I’m guessing 2 is in response to the example I removed from my comment, roughly starting a new equally cost-effective org working on the same thing as another org would be pointless and create waste. I agree that there could be efficiency improvements, but now we’re asking how much and if that justifies the co-founders’ opportunity costs and other costs. The impact of the charity now comes from a possibly only marginal increase in cost-effectiveness. That’s a completely different and much harder analysis. I’m also more skeptical of the gains in cases where EA charities are already involved, since they are already aiming to maximize cost-effectiveness.