A Market for Impact

Abstract

There are two fundamental problems in philanthropy: 1) information aggregation, to allow for the broad assessment of the wide range of charities, and 2) incentive alignment, to better incentivize philanthropists to donate to effective charities. This paper address these two problems through the design of a novel market for impact. We define three classes of contracts that will be traded for a given charity, the units they will be traded in, and provide the full specification of how such a market would be implemented in practice. We then consider equilibrium conditions of the market under specified individual belief distributions and simulate market participant demand to show that the equilibrium price equals the mean belief of market participants. This result suggests that the market is efficient. Finally, we develop numerous techniques to approximate other attributes of the contracts including volatility and the distributions of the true values themselves.