I find the broad proposal of quantifying impact in an equity-like form and providing that “impact equity” to contributing stakeholders proportionally to their contribution to the organization’s impact in an attempt to improve the efficiency of the matching market between organizations and donors compelling. I also think it may have several second-order effects, of which some may be positive and some may be negative, which merit consideration.
More efficient matching markets between organizations and donors
It seems plausible that quantizable impact equity would substantially simplify the donor coordination problem and reduce the communication complexity involved in charity spending decisions. As I understand your proposal, that simplification will result from the distillation of the charity’s program options into a single (or perhaps several, since there may be threshold effects in implementing particular programs) impact equity offers, which can then be evaluated by donors on a comparative basis to other impact equity offers they have from other charities. Charities then need not spend time proposing particular programs to individual donors, and donors needn’t understand the details of the particular programs the charity might pursue.
Less clear to me is how comparable impact equity of different charities would be—would there be a specific metric (e.g. estimated QALYs saved) or would donors construct individual conversion rates (at least implicitly) based on their evaluations of how effective charities are likely to be over their lifetimes? The former further simplifies the evaluation complexity for donors but might be hard to evaluate for many kinds of programs and could lead to problematic incentives (if donor decisions are being made somewhat automatically, charities which overestimate their QALYs saved will have an advantage), while the latter might be harder for a donor to understand or estimate than the impact of a specific program (although this may vary widely based on the charity). This is different than venture capital investing, where the input investment into and eventual expected returns of all potential companies are in the same currency.
Alterations of donor incentives
The reification of contributions into measurable impact equity could lead to a more competitive game between donors since this impact equity confers a measurable kind of status which can easily be publicly displayed. This might have strong positive effects—since the status gained in return is more valuable, donors might donate more—concretely, imagine if everyone’s “impact score” were displayed beside their forum profile or Twitter account. Measurable impact equity might also lead to perverse incentives to overestimate impact, depending on how impact equity from different organisations is compared (see above paragraph).
If the impact return curve of charities is some kind of power law, impact equity might cause donors to contribute smaller amounts to many newer organisations in the expectation that most will fail to have much impact but one or two will succeed and “return the fund”. I don’t know enough about the current funding landscape to judge whether newer organisations are currently over-funded or under-funded.
Alterations of employee incentives
Impact equity could be given to donors only, or given to donors and organisation employees. The latter is the closest to the for-profit equity model, where the founders start with all of the equity and then parcel it out to employees and investors in recompense for work or capital. Giving impact equity to employees might have positive effects—as for donors, it is tangible status and might encourage more employees to join the organisation or encourage existing employees to work harder to increase the future impact of the organisation (and thus the value of their impact equity). However, it might also lead to discontent if employees don’t consider the impact equity allocations to be fair (whether between different employees, between employees and founders, or between employees and investors). One other advantage of not quantizing the individual contributions of employees is that they can sum up to more than 100% - all twenty employees of an organisation may each believe that they are responsible for at least 10% of its success, which is mathematically inconsistent but may be a useful fiction (and in some sense it could be true—there may be threshold effects such that if any individual employee left the impact of the organisation would actually be 10% worse) - if impact equity is explicitly parceled out, everyone’s fractions will sum to 1.
would there be a specific metric (e.g. estimated QALYs saved) or would donors construct individual conversion rates (at least implicitly) based on their evaluations of how effective charities are likely to be over their lifetimes?
It would come down to donor predictions, and different donors will generally have quite different predictions (similar to for-profit investing). I agree there is a further difference where donors will also value different outputs differently.
One other advantage of not quantizing the individual contributions of employees is that they can sum up to more than 100% - all twenty employees of an organisation may each believe that they are responsible for at least 10% of its success, which is mathematically inconsistent but may be a useful fiction (and in some sense it could be true—there may be threshold effects such that if any individual employee left the impact of the organisation would actually be 10% worse) - if impact equity is explicitly parceled out, everyone’s fractions will sum to 1.
I mostly consider this an advantage of quantifying :)
(I also think that impacts should sum to 1, not >1---in the sense that a project is worthwhile iff there is a way of allocating its impact that makes everyone happy, modulo the issue where you may need to separate impact into tranches for unaligned employees who value different parts of that impact.)
However, it might also lead to discontent if employees don’t consider the impact equity allocations to be fair (whether between different employees, between employees and founders, or between employees and investors).
I find the broad proposal of quantifying impact in an equity-like form and providing that “impact equity” to contributing stakeholders proportionally to their contribution to the organization’s impact in an attempt to improve the efficiency of the matching market between organizations and donors compelling. I also think it may have several second-order effects, of which some may be positive and some may be negative, which merit consideration.
More efficient matching markets between organizations and donors
It seems plausible that quantizable impact equity would substantially simplify the donor coordination problem and reduce the communication complexity involved in charity spending decisions. As I understand your proposal, that simplification will result from the distillation of the charity’s program options into a single (or perhaps several, since there may be threshold effects in implementing particular programs) impact equity offers, which can then be evaluated by donors on a comparative basis to other impact equity offers they have from other charities. Charities then need not spend time proposing particular programs to individual donors, and donors needn’t understand the details of the particular programs the charity might pursue.
Less clear to me is how comparable impact equity of different charities would be—would there be a specific metric (e.g. estimated QALYs saved) or would donors construct individual conversion rates (at least implicitly) based on their evaluations of how effective charities are likely to be over their lifetimes? The former further simplifies the evaluation complexity for donors but might be hard to evaluate for many kinds of programs and could lead to problematic incentives (if donor decisions are being made somewhat automatically, charities which overestimate their QALYs saved will have an advantage), while the latter might be harder for a donor to understand or estimate than the impact of a specific program (although this may vary widely based on the charity). This is different than venture capital investing, where the input investment into and eventual expected returns of all potential companies are in the same currency.
Alterations of donor incentives
The reification of contributions into measurable impact equity could lead to a more competitive game between donors since this impact equity confers a measurable kind of status which can easily be publicly displayed. This might have strong positive effects—since the status gained in return is more valuable, donors might donate more—concretely, imagine if everyone’s “impact score” were displayed beside their forum profile or Twitter account. Measurable impact equity might also lead to perverse incentives to overestimate impact, depending on how impact equity from different organisations is compared (see above paragraph).
If the impact return curve of charities is some kind of power law, impact equity might cause donors to contribute smaller amounts to many newer organisations in the expectation that most will fail to have much impact but one or two will succeed and “return the fund”. I don’t know enough about the current funding landscape to judge whether newer organisations are currently over-funded or under-funded.
Alterations of employee incentives
Impact equity could be given to donors only, or given to donors and organisation employees. The latter is the closest to the for-profit equity model, where the founders start with all of the equity and then parcel it out to employees and investors in recompense for work or capital. Giving impact equity to employees might have positive effects—as for donors, it is tangible status and might encourage more employees to join the organisation or encourage existing employees to work harder to increase the future impact of the organisation (and thus the value of their impact equity). However, it might also lead to discontent if employees don’t consider the impact equity allocations to be fair (whether between different employees, between employees and founders, or between employees and investors). One other advantage of not quantizing the individual contributions of employees is that they can sum up to more than 100% - all twenty employees of an organisation may each believe that they are responsible for at least 10% of its success, which is mathematically inconsistent but may be a useful fiction (and in some sense it could be true—there may be threshold effects such that if any individual employee left the impact of the organisation would actually be 10% worse) - if impact equity is explicitly parceled out, everyone’s fractions will sum to 1.
It would come down to donor predictions, and different donors will generally have quite different predictions (similar to for-profit investing). I agree there is a further difference where donors will also value different outputs differently.
I mostly consider this an advantage of quantifying :)
(I also think that impacts should sum to 1, not >1---in the sense that a project is worthwhile iff there is a way of allocating its impact that makes everyone happy, modulo the issue where you may need to separate impact into tranches for unaligned employees who value different parts of that impact.)
This seems like a real downside.