Economic Thinking in Philanthropy
Imagine you are a billionaire who very much wants to change the world for the better. A big question for you is what to do. This is the type of question Ed and I ask in chapter 7 of Madmen. It entails applying economic thinking to make sure you allocate your resources to where they can do the most good.
A related question is how to organize your efforts. Should you set up a foundation? Should it be a perpetual foundation, or should all of the funds be spent within a set number of years after your death? Again, a little economic thinking goes a long way.
In an interview for the Forbes 400 Philanthropy Summit, Bill Gates shares his view:
The more you think about it, having a finite limit makes sense. Because you can really go after a particular thing and count on the rich people of the future to understand better what problems need to be addressed and exactly who should go after those problems.
There’s some good economic logic here, even as Gates recognizes earlier in the interview that a perpetual foundation may be right for other donors. This strategy is a way to minimize the agency problem between Gates and future foundation managers, who may or may not share his vision. He can be reasonably sure that his wishes will be honored regarding how his fortune should be spent to promote the change he wants, at least more so than someone who creates a perpetual endowment.
In addition, the comment recognizes a knowledge problem. Bill and Melinda Gates are aware of current problems in the world and have ideas for how to solve them. The problems in the future will be very different. Thus, it may be best to have those who are most successful at practically applying knowlege in the future — i.e., the successful entrepreneurs of the future — be the ones to address those problems.
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