A certificate of impact (also known as an impact certificate) is a kind of altruistic instrument at the center of a funding model proposed by Paul Christiano. Certificates of impact attempt to harness the benefits of the price system in altruistic contexts, where prices are usually unavailable.
In this model, altruistic work receives some or all of its funding after completion rather than beforehand. Once an individual or organization completes work with a positive social impact, they can apply for a certificate of impact. They can then sell this certificate to another organization or individual. Following the sale, the new certificate holder can claim credit for the project’s impact, and the organization that carried out the project must acknowledge that they have sold its impact.
This scheme has been proposed and tested by some members of the effective altruism community. They argue that the scheme is better than funding incomplete projects, because it allows for payments by results rather than by effort, which better incentivizes those running the project to do a good job. They also argue that awarding certificates of impact might be simpler and clearer than pre-funding projects.
Related models
Recently, some related funding models have been proposed.
In early May 2021, the organization Noora Health—which implements educational programs for mothers of newborns in South Asia—launched a non-fungible token (NFT) which may in some respects be regarded as a certificate of impact. The auction opened with a list price of $2.5 million, and computer scientist and tech entrepreneur Paul Graham—a long-time supporter of the organization—placed the winning bid of ETH 1337, at the time worth $5.23 million.[1][2] A difference between this use of NFTs and certificates of impact as conceived by Christiano is that those bidding in the NFT auction pay for the prospect of future impact. In contrast, an impact purchase is a transaction involving the transfer of past impact.
In late July, a group of authors, in collaboration with Vitalik Buterin, proposed a model called retroactive public goods funding.[3] The model consists of a decentralized autonomous organization (DAO), called “the Results Oracle”, which funds projects with high social value. The funding is done retrospectively rather than prospectively, by assessing the value of the project after it has been completed. Once the Results Oracle evaluates a project, it can send the reward to the person or group responsible for the project, or, alternatively, it can use the funds to establish a price floor for a token associated with the project. As the authors note, rewarding via a project token effectively creates a prediction market for the amount of funding the Results Oracle will decide to allocate to the project, and allows the same project to be funded multiple times or by other sources besides the Results Oracle.
Further reading
Christiano, Paul (2014) Certificates of impact, Rational Altruist, November 15.
Christiano, Paul & Katja Grace (2015a) Why certificates?, The Impact Purchase.
An explanation of the benefits of certificates of impact.
Christiano, Paul & Katja Grace (2015b) Certificates of impact, The Impact Purchase.
Hoffman, Ben (2016) Minimum viable impact purchases, Compass Rose, August 29.
Kuhn, Ben (2015) I just sold half of a blog post, Ben Kuhn’s Blog, April.
A good intuitive description of the idea of impact purchase.
Leong, Chris (2020) Making impact purchases viable, Effective Altruism Forum, April 17.
Linsefors, Linda (2020) The case for impact purchase | part 1, Effective Altruism Forum, April 14.
Rose, Eli (2020) Do impact certificates help if you’re not sure your work is effective?, Effective Altruism Forum, February 12.
Related entries
effective altruism funding | markets for altruism | prize
- ^
Noora Health (2021) Save thousands of lives, OpenSea.
- ^
Graham, Paul (2021) An NFT that saves lives, Paul Graham’s Website, May.
- ^
Wang, Jinglan et al. (2021) Retroactive public goods funding, Ethereum Optimism Blog, July 20.
I love this idea both as a donor and as an entrepreneur. For smaller projects, transaction costs of funding can dominate and this lowers those costs when the entrepreneur is risk tolerant.
When you say transaction costs, I assume you are referring to more than just money—but it’s confusing to me if this is actually cheaper (monetarily) in the short run assuming that the donors don’t just dole out money based on what felt right (or do output based finance rather than outcome). Like they still need to pay evaluators to decide payouts and potentially they have opened themselves up to more criticism or even legal disputes if they had established clear guidelines. I agree the process as a whole is a lot smoother though
Sorry for the late reply.
How do impact certs reduce transaction costs?
1. project risk has many constituents. one of the main project risks is the risk of funding the wrong person. Donors mitigate against this risk by vetting the entrepreneur. This imposes two costs: the first is the vetting cost, and the second is the opportunity cost of rejecting projects whose entrepreneurs fail the vetting filter. Impact certs shift more project risk from donor to the entrepreneur. Where the entrepreneur is capable of assuming this risk, the two costs are eliminated—both the vetting cost and the vetting-false-negative cost.
2. Shifting risk from donor to entrepreneur also improves the entrepreneur’s incentives. So funders don’t need to hedge against the cynical entrepreneur risk (by vetting and rejecting possibly good projects).
3. it is easier to explain why a project had impact in practice (in case it did) than to convince someone else that a project is reasonably expected to have an impact. Lower effort on convincing the donor is again a reduced transaction cost.
Yes, you still need impact assessment, but impact assessment after the fact is easier than a-priori expected impact assessment.
This concept is similar to the idea of social impact bonds (SIB) / pay-for-success (PFS) contracts / flexible prizes to incentivise impact investors to fund the development of public goods in return for the outcome payments if successful. Crowd Funded Cures is working on implementing this idea to incentivise funding of clinical trials for “unmonopolisable therapies” where patents do not work because you cannot recover your investment by charging a monopoly price e.g. finding new uses for off-patent drugs, supplements, plant medicines & psychedelics, diets and non-drug / lifestyle interventions—see https://crowdfundedcures.medium.com/pay-for-success-contracts-a-new-model-to-develop-new-therapies-from-old-drugs-f69b2189184d
This creates a scalable business model on the basis that the cost savings will exceed the amount of outcome payments. For example, a SIB for homelessness, a local govt pays $10k per homeless person housed for at least a year, which saves the local govt $100k in reduced policing costs and economic harm. In the same way a $50m SIB for obtaining FDA approval for repurposing off-patent fluvoxamine to treat Covid could save governments $1b+ from reduced reliance on patented drugs such as molnupiravir—see https://golab.bsg.ox.ac.uk/community/blogs/innovative-financing-mechanisms-2/
This entry should mention that this is also known as an impact purchase, or that there’s a very related idea by that name. But I’m not sure which of those statements is more accurate and I’m busy/lazy, so have at it, other editors!