Why Weak Charity Rules?

In April I posted on “trailer for David Alvarado’s slick-looking new [3D] film on longevity.” There’s now a new trailer:

The Methuselah Generation; The Science of Living Forever from David Anthony Alvarado on Vimeo.

They are using Kickstarter to solicit funds from folks like you to help them finish the film. The film looks nice, and I’m thrilled to be part of it. But alas I can’t in good conscience say that this is my best guess for the charity that, per dollar contributed, does the most good for the world.

It is interesting that they use an innovative way to solicit donations. Why is there so much more innovation in charity funding than in business funding? Here’s a related question: why do Alvarado and company ask for donors, but not investors, for their film? The film might make money, and if it does, why not offer to give some of that back?

The explanation in both cases is probably that regulatory hurdles are far larger for investors. Regulations set far higher standards for people who can ask for your money, if there is a suggestion that you might get some of it money back later. But why? Shouldn’t it be even more important that your money be spend well, if you won’t ever get any of it back?

This regulatory asymmetry seems to me to be an implicit recognition that we mainly donate to charity to signal our good intentions and loyalties, and that we don’t actually care much what happens to the money we donate.

If you invest money hoping to get it back and more, then you are furious if it is badly managed, perhaps stolen, and want stronger regulations to stop that from ever happening again. But if you donate money and the funds are mismanaged, perhaps stolen, so that your good intentions aren’t realized, well you aren’t actually so mad about that. You don’t as furiously demand stronger regulations. Because you already got most of what you wanted: a chance to show everyone how much you care.

Added 20Nov: David asks folks to vote for his project here.

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  • http://www.uncrediblehallq.net/ Chris Hallquist

    Only on topic in a loose sense, but here’s a blog post relevant to your homo hypocriticus hypothesis:

    volokh.com/2011/10/31/why-what-everybody-thinks-about-loopholes-must-be-wrong/

    I also expect you’ll be interested in the author’s book.

  • ascholl

    Or maybe it’s just far easier to construct meaningful regulations for organizations which share a common goal — to make money — than it is to regulate organizations with more varied ends.

    • anon

      It’s also easier to tell when your money has been stolen by an investor (you don’t get the money back) as compared to a charity (the charity doesn’t achieve its goals). Although, a bona fide business venture might fail to yield money due to bad luck, but that’s fairly easy to prove when it happens, so it’s not a big concern.

    • Solvent

      Yeah, I agree with this more than the original explanation.

  • Albert Ling

    So true… and the best way to signal that you care by donating is by donating anonymously and then letting it spread by gossip that you are “the anonymous” (See: http://www.youtube.com/watch?v=gqncCjxGqGw).

    By the way, what is your “best guess for the charity that, per dollar contributed, does the most good for the world.”? I would assume that the Singularity Institute and friendly A.I. development is close to the top of your list? At least that’s what I keep reading from your ex-co-blogger over and over!

    • Albert Ling

      I mean, is there a nonprofit focused on your approach of brain emulations? Even if there were, that approach would (I assume) require MUCH more capital and thus reduce marginal value of donating. Even if the “architecture” approach to AI is much harder, the marginal return is still great since its literally just a bunch guys in a basement with laptops.

      • Ely

        There is the Lichtman lab working on brain connectomics at Harvard. They actually do great work that will presumably have beneficial medical side effects even if the goal of reconstructing the human connectome is far off. Why not donate to them? You can feel good and you can rate the return of investment in terms of the impact factor and citation rankings of any publications produced. I’m always surprised that something like Kickstarter doesn’t exist for graduate research labs.

    • Anonymous

      I would assume that the Singularity Institute and friendly A.I. development is close to the top of your list?

      http://www.new-harvest.org is currently at the top of my personal list. I too am interested in suggestions. Friendly AI is highly relevant, but it seems out of scope for what SIAI will realistically accomplish.

      • Albert Ling

        Petri dish meat! I bet they won’t sell that at Whole Foods

      • Anonymous

        Don’t care. This has the potential to be a solution for the mass consumption of meat, especially processed meat. Ideally, we should be able to produce any kind of physical product without creating suffering brains as a by-product. Thinking of it, it’s really unprofessional for an advances civilization that we don’t even consider this ability as an explicit research goal.

        I’d rather invest in a venture capital fund that does the research in order to earn a return of investment in the long run. But I’m not aware of any such fund with this kind of research focus.

    • http://www.uweb.ucsb.edu/~criedel/ Jess Riedel

      Albert, I believe Robin is skeptical that AI will improve at the rate predicted by SIAI (no ‘FOOM’), so he doesn’t think they will capture nearly as much first-mover advantage even if they are successful in building a minimal AI using the ground-up method. This is in addition to the fact that he think they are unlikely to be successful with this method.

  • http://sensebridge.net Eric Boyd

    The rules in this case are probably not laws, but stem from kickstarter itself:

    http://www.kickstarter.com/start

    “Creative projects only
    Kickstarter cannot be used to fund for charity projects or causes. While there are countless causes worthy of support, we believe that creativity deserves its own space. See our guidelines for more.”

    Generally speaking funding a kickstarter isn’t about charity at all: you get a reward, typically something related to the creative project, e.g. for your friend’s kickstarter, if you pledge $40 or more, he’ll be mailing you the DVD. So I’m not sure that your example actually has anything to do with weak charity rules… although I do expect that people are more lax about getting their kickstarter rewards than they would be about e.g. getting their order from Amazon. But I don’t think that says anything about charity.

    Perhaps a better thing to analyze would be something like ycombinator, where they are investing, and taking equity? You could compare the legal challenges ycombinator faces versus those that people setting up a charity face (or the challenges of their clients/donors), and then you might have something.

    • anon

      Fun fact: there used to be a site called Fundable, which used the same provision-point mechanism as Kickstarter. Most of the “projects” on that site (by number, and possily by monetary amount, although there were some large Kickstarter-like projects) were either pets needing a vet visit or vet surgery, or else stray pets to be sheltered at a facility and given out to potential owners. The deals were worth about $150 each, on average. Most of the projects got funded, and there was circumstantial evidence (on other sites) that at least some of these “pet projects” were real, not spam.

  • Desertopa

    “Here’s a related question: why do Alvarado and company ask for donors, but not investors, for their film? The film might make money, and if it does, why not offer to give some of that back?”

    Because they don’t want to and think they can get away with it? I’d take a grant over a loan any day. The less money they need to give back, the bigger their profits. They might be able to raise more money by asking for investors, but that’s not an advantage if they can already get enough money from donors to finish the movie.

  • http://twitter.com/jplewicke JP Lewicke

    I think that the main reason for this regulatory asymmetry is that empirically speaking, people allocate much smaller fractions of their wealth to individual charitable projects than to individual investments. I’ve never seen a single headline in the news about “Local man loses entire life savings to ineffective charity.” The same headline is found thousands of times a year due to fraudulent investment opportunities.

    Interestingly, this sort of investment opportunity (usually called crowdfunding) will probably become legal again fairly soon. The main proposals all feature caps on the amount an individual can invest that will be a set fraction of either wealth or income. The regulators really don’t want to see “Local Grandmother loses entire nest egg in fraudulent Internet investment” show up on the news.

    • http://www.uweb.ucsb.edu/~criedel/ Jess Riedel

      You haven’t seen that headline precisely for the reasons Robin describes. There are plenty of people who leave most or all of their estate to a charity that basically wastes it. The lack of headlines is not for lack of events.

      That said, I agree that there are significant difference between charity and investment that signaling explanations hardly seem obvious.

  • Michael Wengler

    Investments are part of an economic system in which prices are used to signal money to move to places which are efficient for the production of more stuff. Without much appeal to an optional value system, various optimizations can be defined on this process and regulation tends to improve the ability of the system to move towards those optima. As much as anybody might rail against the extensive regulations on publicly traded stocks in the western world, it is hard to not notice that gigantic reams and buckets of capital are moved in to potentially productive use through these regulated markets than through other mechanisms I can think of.

    It is not as easy to define non-value-laden figures-of-merit on charities. A few can be defined, mostly around transparency of operation, and a few criteria may be set up to distinguish between a charity and a for-profit. But charity is essentially fuzzier: viewed as producers charities are deliberatly outside the price-signalling system and the optimizations associated with it.

    Charities are much more a matter of taste, a consumer item rather than an integral part of the productivity of our society. Or to the extent they are part of the productivity of our society, it is primarily in roles where defects are believed by their funders to exist in how the pricing-based productive system works.

    So charities are at best ad hoc fixes on the productive system, and at worst consumption items. To heavily regulate them for efficiency would be to destroy their ability to hack solutions to percieved problems in the “for-profit” system, and would just be inappropriate for them viewed as consumer items.

  • http://www.derechomercantilespana.blogspot.com jesus alfaro

    Usually you give to charities small amounts of money, but you invest relatively significant amounts of money. This is a difference that matters a lot when you demand for rules that protect you as an investor although you will not demand strict rules as a donor

  • http://grognor.blogspot.com/ Grognor

    God damn, Hanson, I swear, it’s as though, from my point-of-view, you exist to validate my cynical musings.

    This signaling concept of yours is so vastly important a concept from social and evolutionary psychology as applied to just about every topic of interest to me, it’s a wonder and a shame that I haven’t learned about it until just the last few months.

    Also, I hope it’s not rude that I called you “Hanson” just now.

  • Marcus

    You say:

    >> This regulatory asymmetry seems to me to be an implicit recognition that we mainly donate to charity to signal our good intentions and loyalties, and that we don’t actually care much what happens to the money we donate.

    Wow, that’s a leaps. I constantly wonder how you get away with leaps like that here. The best I can come up with is that this is that observing the letter if not the spirit of scientific method is how subverting social science works. I’d presume that isn’t your intention, except your two smart for that.

  • Emmett

    Alternative hypothesis: you rarely see massive altruism-based scams on the same scale as greed-based scams, because altruism is a weaker force than greed. Therefore, we regulate behaviors where you could manipulate others by greed more strongly than behaviors where you could them by altruism.

    Though perhaps it’s simply my inability to call it to mind, I can think of a lot of occasions where investment crazes have seriously disrupted the economy (tulip mania, for example). I can’t think of any corresponding occasions for an altruism craze.

    • http://daedalus2u.blogspot.com/ daedalus2u

      Emmett, haven’t you read Michael Bloomberg? The whole financial crisis of 2008 was caused by altruism, by Congress pressuring Fannie and Freddie to loan money to low income borrowers.

      This is why the economy needs such a backlash of anti-altruism, to get back to something sustainable. [/sarcasm]

      • Emmett

        I appreciate the thought but that’s not quite what I’m talking about. People have done bad or mistaken things for altruistic reasons before, but what they haven’t done is raised so much money that it disrupted the economy.

        The equivalent to tulip-mania or a ponzi scheme for altruistic reasons is what I’m looking for, not anything ever done wrong for altruistic reasons. We’re talking about regulations on raising money in particular, not regulations on general behavior.

  • Wonks Anonymous
  • George Weinberg

    I think you’re approaching this from the wrong angle. Instead of asking why we don’t (yet) have highly restrictive laws on charities, instead you should start by asking why we have such severe restrictions on how people can invest instead of allowing them to make their own investment decisions. Then ask if these same reasons would or would not apply to charitable contributions.

  • Ely

    There’s also an asymmetry of expectations. We expect that our money will motivate the people who receive it when it is given as an investment. We also feel that we have measurable quantities of stuff (property, money) that we can be angry about if it doesn’t materialize as promised. To defend that property (and thus dangle a motivating sword over the neck of people in whom we invest) we set up laws and regulations.

    With charity, we tend to believe that if the charity worker were motivated by money, they would not be as effective. I actually agree that this is true in some cases. For example, students who are motivated purely by learning rather than by receiving the highest grade tend to do much better on tests. In an experimental teaching environment that I was a part of last year, students were given the chance to wager their course credit on in-class multiple choice questions. You could also pay class credit to receive help or combine wagers with other students that you believed were more successful than yourself.

    What we noticed in evaluating the wager data was that students tended to distribute total course credit very evenly, even if they were sure they were correct or had more confidence of being correct vs. their peers. Basically, the brightest students were still willing to pay to bundle their answers with other students, and at the end of the term, the credit distribution was basically uniform with some bumps at either extreme end.

    What this suggests to me is that when people do not feel like they are “under the gun” so to speak and feel no pressure to succeed, they do better at certain tasks. For certain other tasks, being “under the gun” and having pressure to succeed helps to motivate. Whether true or not, I think most people are initially calibrated to believe that “charitable goals” are best achieved without extra pressure to succeed. If I demand a return on my donation to charity, whether in terms of measurable good in the world or personal profit to me, then I think the charity workers will perform worse than if they assume I freely give them a donation with no strings attached.

  • Patri friedman

    Fyi, crowd sourced film funding from investors is pretty straightforward, I invested in a friends low budget indie film recently. So it isn’t regulatory hurdles, for films. I was surprised to discover there is even a way to get around the SEc accredited investor requirement via extra paperwork to show informed consent.

  • http://hanson.gmu.edu Robin Hanson

    I added to this post.

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  • AspiringRationalist

    Charities rely on donors more than businesses rely on investors. Once a business has gotten through the initial build-up, it should be able to sustain itself on re-invested profits or go out of business. Charities, on the other hand generally need to keep raising money.

    Since fund-raising is more important to charities than to businesses, it makes sense to see charities innovating more in that area.