Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Impact Markets: The Annoying Details, published by Scott Alexander on July 15, 2022 on The Effective Altruism Forum.
(crossposted to)
Impact markets (aka impact certificates, retroactive public goods funding) are a frequently-mooted EA idea to create "a VC ecosystem for charity". Instead of funders (eg large foundations) prospectively paying teams to do charitable work, they would retrospectively "buy" moral impact from successful projects. Then investors would "buy equity" in charitable proposals, funding their work in exchange for a portion of the eventual profits. For more information, read Paul Christiano’s or Vitalik Buterin’s in-depth explanations.
I'm interested in using impact markets for the Winter 2022 ACX Grants round, which would require turning this sketch of an idea into a concrete proposal. Below I'm listing some of the open questions about details of an impact marketplace, and my preliminary thoughts on each.
Thanks to everyone who reviewed and made suggestions on this draft. I'm defaulting to keeping reviewers anonymous, but if they prefer to be named I'll add them here later.
1: What Is The Basic Format Of The Market?
A: Simple Retroactive Funding
Some charitable funder announces they will give money to good things that they like. If somebody does a good thing, the funder might give them money later. There isn’t necessarily any investing, certificates, or tokens.
Advantage: This is very simple, and can be done right now: in fact, a team is already doing this for good Effective Altruism Forum posts.
Disadvantage: This is a good start, but really just equivalent to giving prizes to good EA Forum posts. Absent someone else setting up an auxiliary structure, it doesn’t help useful projects get funded. At best, it encourages a few marginal people to do cheap things they might have done anyway.
B: Block Impact Certificates
A charity offers a single impact certificate representing a project. For example, if they need $1 million to cure malaria in Senegal, they sell a single certificate representing that project for $1 million. Then, when an final oracular funder decides the project is worth $5 million, they give $5 million to the holder of the certificate.
Advantage: Again, it's simple.
Disadvantage: Someone needs to have the entire $1 million in order to fund the project. There’s no way to split the costs, which makes it worse than eg stocks. When Tesla needs $1 billion in new funding, it doesn’t just ask billionaires. It sells (eg) one million shares of stock for $1000 each, and then people with much less than $1 billion can bet on their success.
C: Fractionalized Impact Shares
A charity offers splits its offering into many shares or tokens. For example, if they need $1 million to cure malaria in Senegal, they could sell 10,000 tokens for $100 each. Then, when a final oracular funder decides the project is worth $5 million, they compensate each token holder with 1/10,000th of the final reward, so $500.
Advantage: this allows people with much less than $1 million to invest, and creates a secondary market in tokens which people could probably do interesting things with.
Disadvantage: Suppose the charity wants $1 million because it will take $500,000 to build a medicine factory, and then they want to make $500,000 worth of medicine. If only $400,000 in tokens are sold, they can’t even build the factory, and the whole project is worthless. So an investor wouldn’t want to invest $400,000 unless they were sure that someone would produce the other $600,000. But since nobody can know that, people might not invest. Or they might invest, then get very angry when their investment turns ends up useless.
D: Fractionalized Impact Shares With Assurance Contract
As above, except instead of buying a token, investors commit to buy a certain amount of tokens if all tokens ...