A charity can try to mitigate this risk by understanding how much they would need to reduce their valuation to get additional donors interested.
A Vickrey auction should be a nice way of addressing this problem. The charity ends up with a complete, honest listing of all bidder’s valuations. Google’s IPO was structured along these lines.
How is valuation determined?
I think it’s also nice to think about this from an “inside view”. Typically, an asset is priced such that the price equals the net present value of the expected stream of rents the asset generates. The ability to calculate a valuation from (slightly) more tangible inputs means that the charity doesn’t have to pick a totally arbitrary number when they’re starting their price-finding/fundraising process. This definition also helps guide the “Equity in what?” discussion.
No one has an external incentive to behave honestly. The system is intended as an aid for generally-aligned donors and employees to actually understand how much they are contributing.
I know you have this and other caveats throughout, but I definitely worry that it’ll be hard to ignore the numbers when they create perverse incentives (Goodhart’s law, Campbell’s law, etc.). Market mechanisms have lots of problems and I wouldn’t want to import those into the charitable sector unnecessarily (which is not to say that markets don’t have good features or that the charitable sector doesn’t have structural issues). I’ll have to think about this more carefully, but it seems like it would be nice to design a mechanism which is tailored for the unique features of the charitable sector (e.g. incentives ought to be more aligned and less zero sum, any potential market is probably fairly illiquid).
Another thing to think about: Equity typically confers voting rights. Is that appropriate here? Why or why not? The why not argument that comes to mind immediately is: In typical for-profit companies, voting rights are useful as a way of disciplining managers that have their own private incentives. Hopefully, the incentives of donors and charity management are already fairly aligned.
A Vickrey auction should be a nice way of addressing this problem. The charity ends up with a complete, honest listing of all bidder’s valuations. Google’s IPO was structured along these lines.
I think it’s also nice to think about this from an “inside view”. Typically, an asset is priced such that the price equals the net present value of the expected stream of rents the asset generates. The ability to calculate a valuation from (slightly) more tangible inputs means that the charity doesn’t have to pick a totally arbitrary number when they’re starting their price-finding/fundraising process. This definition also helps guide the “Equity in what?” discussion.
I know you have this and other caveats throughout, but I definitely worry that it’ll be hard to ignore the numbers when they create perverse incentives (Goodhart’s law, Campbell’s law, etc.). Market mechanisms have lots of problems and I wouldn’t want to import those into the charitable sector unnecessarily (which is not to say that markets don’t have good features or that the charitable sector doesn’t have structural issues). I’ll have to think about this more carefully, but it seems like it would be nice to design a mechanism which is tailored for the unique features of the charitable sector (e.g. incentives ought to be more aligned and less zero sum, any potential market is probably fairly illiquid).
Another thing to think about: Equity typically confers voting rights. Is that appropriate here? Why or why not? The why not argument that comes to mind immediately is: In typical for-profit companies, voting rights are useful as a way of disciplining managers that have their own private incentives. Hopefully, the incentives of donors and charity management are already fairly aligned.