Impact Markets: The Annoying Details

Thanks for this incredibly comprehensive overview!

I’d like to use this chance to position our GoodX project “Impact Markets” in this context. (Thanks for linking to our MVP post!) I’m trying to write this in a way that is also understandable to people who haven’t thought about impact markets much, so sorry in advance if some of it is unnecessarily verbose.

Our main selling point is simply that altruists are more likely to have some sort of investor in their network (because there are countless ones ) than to have a funder in their network who we would trust (because there are like half a dozen or so – Open Phil, the Future Fund, the EA Funds, the SFF, et al.). Hence, to a funder, the altruist is going to succeed with the baseline probability of some suitably chosen reference class – say 10%. But to the investor, who has more knowledge of their altruistic friend, they are more likely to succeed – say 20%. There are also reasons to think that the investor can make the altruist succeed at a lower cost than the funder. The result is that the funder and the investor can find a reward size that saves the funder money and time (they don’t need to negotiate this in each case) and yet earns the investor a profit.

An added benefit is that funders can hire a wider range of staff. These staff still need to be excellent at priorities research or at applying priorities research, but they don’t need to be excellent at startup picking anymore.

What Is The Basic Format Of The Market?

We want to implement these in a sensible order, from simple to complex. We haven’t considered “block” impact certificates outside an early experiment, so they’re all considered to be fractional in our case.

If “block” certs are legally easier, that could be a reason to rethink that! Our vision for where impact markets might go is that they integrate with the classic financial market: Think tanks (incorporated as, say, public benefit corporations) issue impact certificates, generate a profit from their sale, and control their stock price with the profits, e.g., by paying dividends or doing buybacks. All the investment happens on the level of the classic stock of the think tanks. The impact certificates are just extremely simple products, consumables, that are so simple that it is dead obvious to the SEC that they are not securities. Our (Owen’s) metaphor is (consumable) bottles of wine.

This seems to us like it would make impact markets hard to use for independent researchers (the main audience we have in mind for issuers) because they would have to first start a corporation for their blogs. But maybe there are ways around that. (Maybe accredited investors can invest into the stock of unincorporated associations.)

Note that this consideration (the previous two paragraphs) is much more fundamental than the question whether certs should be fractional or not. It just relates to the question if non-fractional certs are legally easier. But if the investment happens on the level of classic stock anyway, then impact certs could also be issued retroactively, which makes them legally unproblematic according to what we’ve heard from the lawyers we talked to.

Note also that one of our cofounders, Dony, has thought a lot about dominant assurance contracts in the past. I remember him thinking about how they might combine with impact markets. That’s an interesting angle (dominant or not), but not one we’ve prioritized yet.

What Is Being Sold?

We want to keep it simple and so only focus on the core idea of making the “startup picking” part of funding delegatable. For that, the finer points of the metaphysical significance of impact purchases don’t matter. It just matters that there is a trusted retro funder that provides a prize pool and makes good decisions on what projects to reward. We want to leave the philosophy to philosophers or culture to figure out over time. (I can see that these are interesting questions, but I don’t think that that’s where the big counterfactual impact is.)

This sounds similar to what you write under “Credit for funding the project.” But I at least have moved away from the term “moral credit” for this because while some people interpret it simply as “I can get money for holding this contract,” others again interpret metaphysical significance into it (and in various conflicting ways too).

The funders that we envision serving with our solution are funders like the EA Funds, Open Phil, the Future Fund, et al., who are only interested in the counterfactual impact and not in being seen as virtuous by others or by God or some other variation.

We call what our certs certify a “right to retroactive funding,” so a right that is completely limited to only the entitlement to some share of the prize pool to the extent to which it is awarded to the project. (We want to eventually make it possible for people to attach other rights to their certificates, such as “bragging rights” if they so choose, but it’ll be up to them to define how that should work. This agnosticism about the rights that people attach to certs is just an implication of our using the Hypercertificate standard. The author of the Hypercertificates standard, David Dalrymple, and Protocol Labs are working on a solid, standards-based implementation of impact markets that we want to be compatible with.)

Another way to think about it is that if currently someone enters an article that they’ve written into a prize contest, then they can win a prize. If they’ve collaborated with five others on the article, they can agree to split the prize among themselves if they win it. They can (if they all so choose) make that agreement without ever clarifying the metaphysical significance of their agreement.

How Should The Market Handle Projects With Variable Funding Needs?

We’re going for the second solution from your list here because we put a strong emphasis on the precision and verifiability of impact certificates. This has various reasons:

1. we want impact certificates to be like products that charities can sell and that investors can preorder,
2. we want to make it easy for buyers to verify that the impact is not doubly sold under different framings, and
3. we want to make it easy for buyers to verify that the set of issuers is complete according to strong cultural norms.

So “cure malaria in Senegal” is not a definition of an impact cert that would work on our market. It doesn’t have enough details about the concrete actions that’ll be taken, it doesn’t make clear that the issuers really owns the cert to the extent that they claim, etc.

Instead something like this could work: “We want to collaborate with Concern Universal on a distribution of 5 million long-lasting insecticide-treated bednets in the Matam region of Senegal between Jan. 1, 2023 and Apr. 1, 2023. We currently own 60% of the certificate; Concern Universal owns 40%. The census, the distribution, and the follow-up surveys are conducted by paid staff of Concern Universal who have forfeited any claim to the certificate in their work contracts. No one else, to our knowledge, can make a legitimate claim to the certificate.”

This clarifies ownership, timeframe, location, scope, etc. The organization would sell scores or hundreds of such certificates that can all follow a standard template.

Unrelatedly, I don’t think this impact certificate would work: LLIN distributions are an intervention that is highly likely to work. Funders may assign a 90% chance to their success; a highly involved investor might assign a 95% chance to the success. That gives the investor a very, very minimal edge over the funder. The funder would likely consider it unnecessary overhead to use impact markets for this, or, if they do end up using them, they’ll pay very little over the counterfactual prospective funding for the very slightly reduced risk. That’ll not be enough for the investor to beat some counterfactual investment like a standard ETF. That’s in contrast to hits-based giving where funders often assign a 10% chance of success, which leave a lot of (multiplicative) room for highly involved investors to be more optimistic.

Should Founders Be Getting Rich Off Impact Certificates?

We haven’t thought about this much and would love to be convinced one way or the other.

But if there are projects that everyone recognizes as good, then an impact marketplace will shift the surplus from final oracular funders (who are forced to pay prices more commensurate with their benefits) to someone else. If we let founders get rich, it shifts the surplus to founders. If we don’t let founders get rich, it shifts the surplus to fast investors who may not have added any value - that is, to the first people who snapped up the obviously-underpriced certificates. See Section 7 for more on this problem.

I don’t have a good solution to this latter issue other than either not using impact markets, or allowing founders to get rich. I sketch a hack-ish solution in Section 11C.

My take is basically the first, i.e. that impact markets won’t be used for projects where it doesn’t make sense for both sides (investors/founders and funders) to use them. These will just continue to use prospective funding. This just seems like a brute fact of the preferences of the market actors and not like something that is under the control of the marketplace at all.

Some more elaboration in case it’s not clear what I mean (but it probably is): Funders will pay as little as they can get away with paying. They may start by offering prizes that are just slightly more than what they would’ve paid prospectively for a single project (with, say, a 10% chance of success). Maybe no investor will be interested. Then they’ll raise their bid slightly again and again until investors start to be interested and the first few projects actually get funded from investor money. But this is still strictly less than what the funders would’ve otherwise paid in total for prospective funding. Sure, some of that money goes to investors who can buy yachts from it, but the counterfactual is not that that money would’ve gone to beneficiaries but that it (and more) would’ve gone to failed projects.

Or in made-up numbers: In the prospective-funding world, a funder pays out a total of $1m to 100 projects ($10k each), 10 of which succeed. In the retrospective world, the funder pays out $800k to 10 projects ($80k each), all of which have succeeded. These $80k are maybe split $40k to the founders and $40k to the investors, so that one could say that $40k or more have gone to waste in some sense. But that’s compared to a counterfactual that was never attainable in the first place. More realistically, the funder achieved the same impact while saving $200k that can now go to more projects to help beneficiaries.

Unrelatedly, established charities (as opposed to independent researchers or startup charities) often have track records that make impact markets redundant (see above) or have 18+ months of runway that retro funding would funge with, so that, one way or another, funders are probably not very interested in using impact markets for them.

If impact markets were “a success”, they might have to more than dectuple the amount they pay this person, with no change to their output.

Realistically, I think, a funder wouldn’t just dectuple the investment but would try to pay as little as possible that is just enough to incentivize the creation of this researcher. By construction, the six-figure salary (say, $200k) is not enough to create an additional engineer, but maybe $300k is enough, in which case the funder would bid $300k, not $10m. Of course it could just so happen that the only price that incentivizes the creation of another researcher is no less than $10m, but then the counterfactual is not another researcher for $200k but no researcher at all.

Again the funder is well-advised to keep their true valuation of the impact (if they can come up with such a thing) a secret and just bid as low as they can get away with. (Just like when you buy a second-hand laptop. You may privately decide that you’ll bid up to $1k for it and yet start by bidding $100 because it might just be enough to convince the seller to part with the laptop.)

Admittedly, the current AI safety researchers may get greedy and try to use whatever leverage they have to get more money, but they could do that already.

How Do We Kickstart The Existence Of An Impact Market?

The Committed Pot of Money is the main or most fundamental solution we have in mind. The lower-down solutions are more powerful and they may be the desirable end states but they also come with risks that we’re wary of.

If I put myself into the shoes of an early investor on the Committed Pot of Money impact market, I don’t model myself as judging my chances to break even as a random draw. Rather, by buying in early I can buy more at a lower price, so that I later have an outsized share in the expected returns compared to later investors. But I also have an opinion on what the retro funder will value, and that model has a much stronger effect on my subjective expected returns than the amount that has been invested in total in all projects.

(If I buy SOL tokens at $5 because I think Solana is a great technology with a high success chance, I don’t start to think that Solana is going to be much less successful only because there is heavy investment into Solana and many other technologies. I’ll Aumann-update a bit on all the investments into Avalanche, Cardano, etc., but not overwhelmingly much.)

Should The Market Use Cryptocurrency?

My thoughts: Crypto-literate reviewers say that crypto exchanges take fiat and handle transactions within themselves in a non-crypto way - but then the crypto exists in case someone wants to bring it to a different exchange. This seems like a best of both worlds scenario.

Agreed. Plus we can just start with simple non-crypto solutions and keep all other options open in case there are eventually strong arguments to transition to something more like FTX (centralized) or Serum (decentralized).

How Should The Market Price IPOs?

We have an auction process that A Donor developed for us  (see A Donor’s comment) that, we think, solves B neatly. We haven’t implemented it yet. (It is based on the view that it is desirable to reward people for aiding a fast price discovery.)

How Should The Oracular Funder Buy Successful Projects?

We’ve considered both – buying shares immediately if possible or creating the funding floor of limit orders. For now we’re going with the first solution simply for simplicity, but I definitely see the appeal of the second.

What Should The Final Oracular Funder’s Decision Process Be?

My thoughts: Guess this one is up to the final oracular funders.

Agreed. And by implication I think it’ll be an auction where the funders bid as little as they can get away with paying and only bid more if they don’t observe enough projects getting started or invested in.

Who Are We Expecting To Have As Investors?

My thoughts: Institutional types probably won’t bite for a little while, so we'll need to be prepared for ordinary people.

Agreed. Plus, institutional types are again fewer and have to optimize more for scale, which causes them to suffer from some of the same problems that funders currently suffer from. Investors should rather be the sort of people who are sufficiently many and sufficiently unconstrained by scale that every independent researcher or startup entrepreneur can so happen to know one or two of them quite well.

It’s apparently now possible to become an accredited investor by passing an exam, which lowers the bar. But impact certs as we conceive of them can be consumed (or “dedicated” or “burned”) by altruists, which plausibly turns them into consumables. Consumables, such as wine, can also be preordered and resold. I find it plausible that impact certs are so much more like wine and so much less like stock that they are not securities in the eye of the law or the SEC. Plus, all of this is easier in many countries other than the US and UK.

Conclusion: What Kind Of Impact Market Should We Have?

I think the above has elucidated the design that we’re interested in. It’s similar to the “Maximum Capitalism” design but without the metaphysical bits about “losing credit” and such. The founders have done their work, and if they (maybe unwisely) elected to sell 100% of their impact cert, they’ve still done their work and can get their recognition and kudos for it. (For comparison, if I start a successful startup and make an exit, I can still claim to have started a successful startup and get the reputational benefits.)

Issues Around Unregistered Securities

We have talked with lawyers about this and people with more experience with quasi impact markets. The devil is in the details. There are various ways to avoid the impression that impact certs are securities – as mentioned above, we conceive of them like bottles of wine that can be preordered, stored, resold, and consumed – but we don’t yet have full legal clarity on the issue.

Issues Around Tax-Deductability

In our view, investing in impact certs should not be tax-deductible. It’s done with a profit motive. But consuming the certificate is something that is altruistic, and it would make sense to see to it that that is tax deductible. We envision one potential system where you have the option to do all your cert trades through a nonprofit. The nonprofit just executes all your deals on your behalf. So long as you haven’t consumed your certs, the nonprofit does nothing else. But once you consume a cert, that nonprofit (not the issuer of the cert) writes the donation receipt for you.

Issues Around Oracular Funders’ Nonprofit Status

There may be larger prize contests (such as the XPrize) organized by nonprofits. One could research those to look for legal precedents.

Issues Around Governance And Principal-Agent Problems

Agreed.

Issues Around Middlemen Holding Money

We’re currently planning to let people transact directly with each other to avoid these questions for the time being to be lean and all.

Accidentally Encouraging High-Risk Negative-In-Expectation Projects

This is getting at some of the big crucial problems for us that we’ve been mulling over for a year or so. Here is a list of all the current risks and mitigation mechanisms that we see.

Attributed Impact (mentioned in the linked document ) also addresses moral trade, the lack of which I consider an even greater problem as well as a superset that contains the problem of the distribution mismatch.

Using Impact Certificates For Evil

The above document also addresses this.

Incentivizing Reward-Hacking

That is an interesting failure mode to look out for.

People Could Lose A Lot Of Money

I think we should promote a norm that people shouldn’t invest any money in impact certificates that they don’t want to lose. Otherwise, I’m not sure this is any worse than eg crypto, which already lets small investors lose all their money quickly.

Agreed. A marketplace could also set a default limit on investments and only raise it for investors who have somehow proven that they are financial savvy. Only allowing accredited investors to invest would have that effect, though it may be a bit too exclusive.

Nice!  If you end up with a predictive component, I—and perhaps my forecasting group—would be up for giving probability estimates of their chosen metric of success, and maybe estimates of their value. I imagine that these forecasts/estimates would at first be shitty, since they would be in a new domain, and it's hard to get intuitions, or baserates & distributions of success. But I'd be up for trying!

I did a bunch of mechanism design on the details of #1 alongside the Impact Markets people!

Key desiderata:

• Low overhead for participants in the market - Incentivising these people to spend lots of brainpower trying to work out when you buy and sell is massively suboptimal. You want a system that is buy and forget and just works.
• Minimize hard feelings around selling your cert at a loss or seeing equivalent ones go for a very low price - Related to your #II - C
• Impact authors automatically get some fraction of the rewards of a very successful project^[1]
• Ability to buy into certificates for flexible amounts, with minimal hassle and handling scaling well

We converged on the below model if there is a payments platform like FTX to automate microtransactions (crypto or not), and a different one which has slightly less nice properties but requires less payouts per pay-in. I can write that one up too if wanted.

Awesome Auto-Auction (better name welcome)

The core innovation is the queue of impact slices, with a "head" of buyouts moving along the queue as new money comes in.

Ownership of certificates in an auto-auction is divided into a series of slices, from earliest (the initial entry creating the auction), through all previous holders of slices of ownership, to the current owners’ slices.^[2]

There is no action required to sell or decisions about price, the only available move is to buy and the only decision is how much you want to buy. When someone buys into a cert, the incoming money is split into three streams:

• Creator - Directly to the impact creator
• Capital repayment - Returning the capital to current holders of the cert and buying out their slice, with no opportunity for profit
• Royalty - Giving profit to investors who have already been bought out, in proportion to the amount they raised price by (incentivising people to be early investors and raise the price)

Let’s look at an example of how this plays out with a $1000 purchase into a cert, with a 25% / 30% / 45% split.^[3]

Some set % goes to the original creator (100% if they have not yet got their asking price, optionally held by an assurance contract until met), some goes to paying back the money current owners put in to buy their slices (with the oldest current owner getting priority), and some as a trickle income profit to already bought-out investors who funded the cert earlier in proportion to how much they raised the price (as a %) divided by the total amount that bought out investors raised the price (the %s added together).

I made a spreadsheet which you can copy to play around with split proportions and buy events and see how the money ends up distributed among the three groups at different investment levels.

This might sound complicated, but can be made very straightforward to operate and understand with a UI which lets buyers predict how much would be paid out by their purchase at any future level of total investment in the cert. This could work something like:
 

This mechanism seems to thoroughly succeed at all the desiderata, and would I think make impact markets much lower friction than other proposed market mechanisms (and as a bonus transitions smoothly into #5E!). 

Edit: Also might well help with some of the concerns raised in the reddit thread, as I think the action "sell" has weird emotional connotations in this domain which this mechanism might bypass.

I would be happy to have calls with anyone who might want to turn it into a reality.

1. ^{^}

   I come down on the "doing good should be a route to increasing wealth" side of #4, with the caveat that I'd like to see this happen not as a big sell off type event where a final funder directly buys impact from someone who has already got plenty back, but as an ongoing royalty stream which any funder can top up if they liked the project and is split fairly among investors and creators.

2. ^{^}

   If using crypto, each individual’s NFT represents the combination of all their blocks of ownership, and indicates both how large a share of the NFT they currently own and their share of past ownership visually in an unobtrusive manner (likely a thin bar, with two colors).

3. ^{^}

   The split can either be determined by the creator as they add the cert to the market, or we could just pick reasonable defaults and everyone sticks to that.

I think Yes on (4) - make the founders rich, because most of the value will come from incentivising people to have an impact. Hence (B) on (7) - you auction the shares. The main disadvantage is that the greater cost might dissuade investors, which I think is mitigated a bit by making the certs cheaper via (B) on (2).

Two points on (2): i) i'm not convinced that you (an initial buyer) get to ultimately decide how impact certs are valued. You at most get to write something about the asset in the contract, but ultimately it is the buyers and sellers who will decide how to value it. I feel if they are grantmakers seeking to incentivise good work at a low cost, they may be disinclined from buying the impact that would have happened anyway (even absent their existence as a funder). One way that preference could be satisfied is to give each share a number. Funders will value the first shares most, because they are fully "counterfactual", but if half of the value comes from a thing that the founder would have done anyway, then shares beyond halfway will be worth nothing. ii) so far we've talked about what happens when a funder buys a cert from a founder. There's also the question of what happens when the next guy buys the cert from the funder. Should you pay for the whole impact of the funder paying the founder, or only the impact of paying the funder (i.e. apply the solution recursively). The latter would arguably be a somewhat distinct solution (c).

I tried to think about (2) a bit here - https://forum.effectivealtruism.org/posts/eb28pDHzZz2RWh9Fh/will-impact-certificates-value-only-impact. It hasn't had much discussion, so probably I'm still missing a lot of considerations.

This discussion would benefit from an empirical analysis of social impact bonds and previous efforts to quantify and financialize social impact. My not super deep understanding from talking to old school foundation COO types is that those examples are a very mixed bag and very difficult to measure. The market dynamics discussed here take well functioning measurement as a given but that is usually not the case. Consider all the debates about the impact of various education "reform" interventions in the United States for example. 

Here is the canonical first US social impact bond example: https://hbsp.harvard.edu/product/UV7311-PDF-ENG

If we allowed founders to capture more of the surplus, then maybe the founder would end up with $50 billion, and the charity and its beneficiaries would only get $50 billion, which seems much worse for them. Given that our goal here is to help beneficiaries (and by implication charities, since any money charities save goes to the beneficiaries eventually), this seems pretty bad.

As far as I understand, your worry is that investors might pay so much for impact certificates that it lowers total impact (because it means less money to beneficiaries/programs). But shouldn't investors take such effects into account when they decide what to pay for an impact certificate - and when they estimate what other investors will be will be willing to pay for the impact certificate? As far as I can tell, this argument seems to assume that the investors would be irrational, and/or that impact certificate prices will for some other reason deviate from what's socially optimal. I guess the hope is that the socially optimal price will effectively be akin to a Schelling point, and that investors should try to guess what that price is. If so, they wouldn't overpay for impact certificates, but simply pay the socially optimal amount. But maybe there's some consideration here I'm missing - I'm not read up on these issues.

One thing that confused me was the assumption at various points that the oracle is going to pay out the entire surplus generated. That'll get the most projects done, but it will have bad results because you'll have spent the entire surplus on charity yachts.

The oracle should be paying out what it takes to get projects done. Not in the sense of labor theory of value, I mean that if you are having trouble attracting projects, payouts should go up, and if you have lots of competition for funding, payouts should go down.

This is actually a lot like a monopsony situation, where you can have unemployment (analogous to net-positive projects that don't get done) because the monopsonistic employer has a hard time paying those last few people what they want without having to raise wages for everyone else, eating into their surplus.

Ofer and Owen Cotton-Barrett have discussed this here. Their conclusion is that final oracular funders should take this into account when deciding who to grant impact certificates to.

Speaking only for myself, I don't see that as my conclusion. Here are some excerpts from our post:

even if everyone believes that a certain project is net-negative, its certificates may be traded for a high price due to the chance that the project will end up being beneficial.

.

It seems especially important to prevent the risk from materializing in the domains of anthropogenic x-risks and meta-EA. Many projects in those domains can cause a lot of accidental harm because, for example, they can draw attention to info hazards, produce harmful outreach campaigns, produce dangerous experiments (e.g. in machine learning or virology), shorten AI timelines, intensify competition dynamics among AI labs, etcetera.

.

Currently, launching impact markets seems to us (non-robustly) net-negative. The following types of impact markets seems especially concerning:

• Decentralized impact markets (in which there are no accountable decision makers that can control or shut down the market).
• [...]

.

In any case, launching an impact market should not be done without (weak) consensus among the EA community, in order to avoid the unilateralist's curse.

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To avoid tricky conflicts of interest, work to establish impact markets should only ever be funded in forward-looking ways. Retro funders should commit to not buying impact of work that led to impact markets (at least work before the time when the incentivization of net-negative projects has been robustly cleared up, if it ever is). EA should socially disapprove of anyone who did work on impact markets trying to sell impact of that work.

You wrote:

but at least figuring out whether there were potential bad effects sounds like a somewhat easier problem than figuring out whether something will work.

I think the oppositive may often be true. Quoting from our post:

Suppose that a risky project that is ex-ante net-negative ends up being beneficial. If retro funders attempt to evaluate it after it already ended up being beneficial, hindsight bias can easily cause them to overestimate its ex-ante EV. This phenomenon can make the certificates of net-negative projects more appealing to investors, already at an early stage of the project (before it is known whether the project will end up being beneficial or harmful).

You wrote:

Advantage: this is how we do everything else under capitalism, and it usually sort of works.

I'm not sure what "usually sort of works" means, from an EA perspective. Capitalism seems to be a contributing factor to x-risks from AI, for example.

This could also be handled at the market level, by refusing to list certificates/tokens in projects that were especially likely to be high negative-impact - although, again, this requires market officials to be smart, which is a strong requirement.

This solution also requires that the impact market will not be a decentralized market that no one can control. It also requires to sufficiently prevent the "market officials" from being influenced by conflicts of interest (e.g. in case they'll be able to sell the impact of their work to establish/control an impact market on that very market.)

Conclusion

Impact markets may incentivize people to carry out net-negative projects in anthropogenic x-risk domains, using EA funding. Conditional on impact markets being astronomically influential, the risk of them incentivizing net-negative projects can cause the entire EA movement to be net-negative. It's not a minor issue that we should just keep in mind while moving ahead with impact markets. As an analogy, suppose the NIH would prepare a long policy analysis document about how to fund more effective BSL-4 virology labs, with a section at the end titled: "Appendix II: safety issues".

Re 1. I think the key aspect of impact certificates which is 'un-mentioned' here is their continued tradability. At any stage, funders will seek to invest into projects with greater value in the future. This will cause development according to the market values. 

For example, someone can buy insect welfare farm prototyping certificates in 2022, because they think that in 2025, they will sell for 10x the value. If in early 2023, people are willing to pay twice that in 2022, in mid-2023 the price is 3x what it was in 2022. Continued investments into the org enable it to reduce the cost, make better use of, and gain more insights into the product. Thus, the org prospers.

So, founders (and any shareholders) should be getting rich off impact certificates, because richness denotes impact.

I suggest that full impact of the project is sold: if people compete in how much impact they have, then they can either advance projects traditionally (direct work or funding) and entitle what the consensus among the project organizers and funders is or buy certificates. If only funding impact is sold, then organizers cannot participate in funding ownership unless they buy shares, which creates an unnecessarily divided atmosphere.

If funding needs are variable (which should apply to the majority of cause areas or scalable projects), then 100% impact should be clearly defined and shares traded while it should be possible to purchase shares in bulk.

If beneficiaries are increasingly more costly to reach, then the price of additional shares increases. This motivates funders to buy early. If some intervention, such as malaria vaccine research, reduces the unit cost of the remainder of the problem, then the vaccine investors should be able to buy bulk of shares, for example until the cost of vaccinating very difficult to reach beneficiaries equates that of moderately difficult to reach beneficiaries currently given bednets (at the current impact share rate).

Some speculators may wait until cost-effectiveness increases, e. g. due to research, if they hypothesize that even the last person vaccinated enjoys malaria prevention at a lower cost than any other one receiving a bednet (current practice) would. This optimizes resource allocation between cost-effectiveness increasing and direct benefit actions.

To spare any Oracular Funders from having to fund projects while enabling purchases of any scope, no pot should exist. Anyone can sell and anyone can buy. For example, suppose that you express interest in 20 projects and get 500 notes of people starting working or thinking of them requesting more to keep going. You fund 5 which you like and think that can get funding elsewhere later which increases the value of your shares while someone else funds other 5 which later get back to you with more promising results asking you for more to increase their impact. This (also a form of ideal state) can be kickstarted by several funders expressing interest in the projects of which certificates they'd like to purchase. Sometimes, people post projects they'd like to see on the EA Forum. So, maybe a tag: 'Certificates Purchase Interest' can be a good start.

I think that there has to be an option of using fiat. For example, crypto taxation in the US is a new thing to many people and could discourage participants. Some people, on the other hand, enjoy crypto, or even try to see which of the few products which accept crypto they buy. So, there should be an option to pay with fiat or crypto, both with equally low (no) fees (e. g. no 3% credit card fee).

I am for direct purchases rather than action. Considering the speed at which impact funding progresses, I am not worried that rents would be captured by the fastest, who would immediately be able to resell higher. And even if they were (for example if they bought in a window of opportunity when price plummeted and solved the problem), good for them. Auctioning, which is unfamiliar to many, could prevent people from acting fast and taking the advantage of opportunities to solve great shares of problems.

Funding floors by large funders may influence the market sentiments. For example, if a funder states that they will buy a relatively unfamiliar solution for $5m, then other investors can start buying around $5m*percent. If they set the floor of a second project at $5m when currently funders invest $10m*percent, then market funding can more away from the second project.

By economic theory, this should reduce the price of the second project. In practice, this can happen. For example, if an NGO cuts relatively cost-ineffective aspects. However, for maximally cost-effective projects, the price cannot decrease so less impact in that area will happen.

A volatile funding floor can misallocate but also improve the allocation of investments. Using your example of the medicine factory, if a funder first announces that they value the disease eradication at $1m but after $400k is invested, they change the value to $500k, then if they invested the $400k, no disease is cured because factory is build but no medicines produced. If others invested the $400k, then 80% of the disease is cured by the additional $500k. Another investor can purchase the remaining $100k for a price which is not unreasonably high.

I am for purchases, pitches, or demand by anyone at anytime, while I think that giving ranges of both costs and price values with possible record of adherence to the ranges from both sides can increase efficiency. It may be that some prices do not converge at market value, but at 'niche' market value informed by the market participants costs and benefits knowledge (e. g. due to impact complementarity to different fields).

 From institutions, academia can be the most readily interested in impact funding, while it can retain the intellectual depth which could be decreased by commercial marketing. Considering the price and minimum wage differential among industrialized and industrializing nations, even a relatively average funder could hire a qualified FTE team for 10% of their salary. 

My stance is that founders should be able to sell any percentage at any price. If they seek to pay themselves a reasonable salary and produce results which have been agreed upon, they should be able to retain the 'action' impact while the funders the funding impact (this would be a traditional funding case). 

I am not sure about the legal issues but just like anyone can buy crypto in many jurisdictions, then people should be able to buy impact certificates? People invest into crypto but it is considered an asset thus does not follow investment law? I have not at all researched this.

Currently, anyone can purchase any good or service, even if its impact is negative. So, impact markets would not make this worse. Law should prevent criminal activity. It is likely that impact certificates would not fund (legal) projects which have clearly negative impact, such as a cage factory farm. The impact certificate would be, for example, to reduce such farming.

The main worry can be that a funder invests into risk-mitigation in a way that alerts malevolent actors of an opportunity, which increases the risk. Biosecurity and AI safety are the areas in EA that come to mind. This is worse for direct funding, where there is no feedback of other funders who would signal disinterest by divestment.

The impact market trying to influence funders should be optimal. In addition, the Future Fund and currently OpenPhil actively ask people for insights about projects. Both have structures which enable gaining value from the insights while preventing manipulation.

The emotions should be positive. If one is spending 40 hours working on a project application with 6% chance of acceptance, they know it. If someone invests $1,000 into a research project if they think that it will be bought for $100,000 later with 3% chance, they made a decision. I agree that people should have the time and money, otherwise it would not be fun. There are other fun impact opportunities paid more certainly.

Quick opinions on the choice branches:

1: What Is The Basic Format Of The Market?

Custom: Awesome Auto Auction, but closest to D: Fractionalized Impact Shares With Assurance Contract.

2: What Is Being Sold?

B: Credit For Funding The Project - Funding a project retroactively should not be considered morally different from funding it in any other way, creating a novel kind of moral accounting seems overcomplicating things and hard to get actual consensus / common knowledge on.

3: How Should The Market Handle Projects With Variable Funding Needs?

Custom: Awesome Auto Auction solves this elegantly, by letting the project absorb some fraction of the value of the cert if it continues to grow.

4: Should Founders Be Getting Rich Off Impact Certificates?

A: Yes as this provides good incentives, but again with Awesome Auto Auction presenting a somewhat cleaner way than the default, as the founders would not liquidate their shares and drop the price / eat a chunk of donor money, but instead receive trickle income if their project kept climbing in value.

5: How Do We Kickstart The Existence Of An Impact Market?

B: Committed Pot Of Money (aka The Original ACX Grants Plan) plus common knowledge that other funders can easily join later and will do so if they like what's happening

6: Should The Market Use Cryptocurrency?

The best of both world proposal you mention seems clearly the best.

7: How Should The Market Price IPOs?

Custom: Awesome Auto Auction. Combines most of the advantages of both, I think?

8: How Should The Oracular Funder Buy Successful Projects?

A. By Buying A Certain Number Of Shares, with Awesome Auto Auction I think removing the main concern of Monopsony? But either way, B does not fit the structure.

9: What Should The Final Oracular Funder’s Decision Process Be?

A: Fund Based On Regular Charitable Decision-Making Procedure seems like a reasonable default, but letting the oracular decide seems correct.

10: Who Are We Expecting To Have As Investors?

Custom: People who are basically just okay with donating the money, like me, but don't have infinite runway so would be happy to be topped up by major funders who like the bets we pick. I really want impact markets to exist for my own use case.

11: Conclusion: What Kind Of Impact Market Should We Have?

I really hate all these options, and I’m posting this partly to see if other people have better ideas. 

You bet I have an idea!  And I bet you can guess what it is! Awesome Auto Auction solves this neatly, the founder gets funding which scales with the value of the cert, but not in a form they can sell so there is no risk of them losing the credit for their project.

Happy to go into far more detail on any of these if requested.

I’m confused about how you trace whether a project was responsible for an outcome. Two examples:

1. Many scientific discoveries are the result of many researchers working on a problem for a long time, making it difficult to trace back whose contribution had what fractional impact towards e.g. an AI alignment breakthrough. But if we’re only paying the person who did the last bit, we’re dramatically underfunding all projects that lay important groundwork, and overfunding work near the end.
2. If malaria decreases in Senegal, but then two different charities claim this effect, one of which was doing mosquito gene drives and the other of which was distributing bednets. There is insufficient data to run an RCT good enough to provide high precision about the relative strength of these interventions. Do the VCs need to spend all their time trying to figure out how future RCT designs will or will not structurally favor their investment?

A flexible prize model is a much simpler design for creating a market for doing public good / charitable things. Seems that terminology being used is complicating matters - whether you call it Impact Certificates, Social Impact Bonds, Pay-For-Success contracts, Advance Market Commitments, Retroactive Public Goods Funding , etc. They are all flavours of conditional contracts . But you want to ensure that the parties cannot change the terms of the deal for receiving outcome payments unilaterally in the future (which IMO is a problem with RPGF). 

The part which is the most important is for a funder to put a price on some measurable outcome that they want and have clear and unambiguous criteria for determining whether the outcome is met (e.g. $10k per homeless person housed for at least 1 year).  Ideally, this outcome should provide more benefit to the funder than the price paid (e.g. $15k+ cost savings due to reduced policing, boost to economy etc), which makes it an arms-length negotiation and scalable business model. The superintelligence of the market does the rest (e.g. VC investing in companies competing for the payments, and automatically price in what they think are their future cashflows  etc). Where it can get more subtle is where you are paying a flexible outcome payment proportional to impact. 

The other concern is that if we assume funders will have a limited budget, so need to prevent blow outs. In that case, you can pay a fixed amount distributed between companies "registered" to the fund that achieve the criteria for outcome payments, proportional to the achievement of their impact measure (e.g. each person put in a home provides a number of "points" that determines the company's percentage entitlement for a pre-determined period of time such as 5 years). Market equilibrium is reached with a certain number of company registrations, and the proportion of rewards available proportionally increases as the "points" cease to be eligible for outcome payments after the pre-determined period of time . Social impact is then infinitely scalable with the size of the fund, and the market automatically allocates payments in an efficient way. 

So to illustrate this in an example:

A funder decides they will pay $2m p/a in a flexible prize fund, allocated between companies registered to the prize fund proportional to the number of homeless people housed for at least 1 year. Company A houses 30 homeless people for a year (30 points). Company B houses 90 (90 points). For that year, the £2m will be split 25% to Company A and 75% to Company B. They will keep those points for 5 years. Next year, Company A houses another 30 (30+30 = 60 points), and Company B houses another 90 (90 + 90 = 180 points). Same split. In the third year, Companies A and B they do the same, but a newcomer Company C puts in 100 people in a home, so it will be split 90/270/100 between A, B and C. After 5 years, Companies A and B lose 30 points and 90 points respectively as the 5 years is up, which provides more proportionally for everyone else.

If a funder wants to increase the number of homeless people housed, they just increase the annual payment, and a new "market equilibrium" is reached. 

This flexible prize model can be applied to any form of public good, as long as we can agree they are robustly measurable and comparable with each other (e.g. QALYs, % reduction in hospitalisations vs usual care, number of kids put in college, lives saved etc). 

Credit to Pogge and Hollis for the idea of a flexible prize fund:  https://en.wikipedia.org/wiki/Health_Impact_Fund

What do we want from impacts markets?

Mostly, we want the prediction power of markets.

Do we want the market to take on some of the risk? Probably no.  Most current funds are ok with risks, as long as the odds are net positive. Scott seems to think that transferring risk to to investors is a bad externality of impacts market. 

This is bad both because we don’t want people to lose all their money, and because this might create moral hazard on the part of final oracular funders to recoup some of people’s losses if they seem like an especially pitiful case.

I have not thought at lot about this, but I think I agree with Scott here.


So what we want is a way of tracking and rewarding good predictions. But we already have a solution for that, i.e. prediction markets. Granted that there are still design details to be worked out regarding prediction markets, but 

1. It seems like an easier problem
2. There are already several experiments to learn from

In a prediction market, good predictors provide information and get rewarded for this. Funders can use the prediction market to guide what they fund. If they choose to fund something risky, some of the risk falls on the predictors (we can't remove this completely, and I don't think we want to either) but most of the risk falls on the funder, which I think is what we want.

This also solves some other problems. 

1. Funders can just not fund things with obvious large downside risk.
2. Investor can't capture almost all the value by just being fast at buying obvious opportunities.

Although I don't think 2 will be a big problem even in a impact market.  If it is an obvious good idea the people who wants to run the projects can just not go though the markets and instead reach out to a funder directly.

predictor = person who invest in prediction market
investor  = person who invest in impacts market
funder = person or institution who want's to fund altruism, with no expectation of financial return.

I'm I missing something that we want from a impacts market that we can't get from a prediction market?

(I've written about impact purchase before. However the thing I want out of such a system is completely removed from Scott's suggestion, and vise versa, so should probably not count as the same type of system.)

But do oracular funders (eg OpenPhil, Future Fund) pay taxes at all, or benefit from tax-deductability? I’m not clear on this.

In theory it would be great to get a lawyer/money manager from one of these orgs to comment on this, but I don't expect that to happen, so I'm going to give my guess as someone who runs a charity that has gotten money from both of these orgs.

I think most of Open Phil's money is stored at a DAF at SVCF. Dustin presumably got a big tax deduction when he donated to that DAF. Open Phil also sometimes distributes money in other ways, which may or may not benefit from tax-deductibility. But those should be thought of as "more expensive" since it costs money (taxes) to get money from Dustin's pocket into those funds. So I think impact certificates would be more expensive for Open Phil than if they'd funded the project directly.

I don't think the Future Fund has a DAF, but instead benefits from being based in The Bahamas, which doesn't have income or capital gains taxes. I expect that impact certificates would not really be more expensive for them because...FTX and SBF don't pay taxes at all?

I think most existing charitable funders look more like Open Phil here.

I don't understand the incentives of the "oracular funder." What are some examples of organisations/individuals that would be oracular funders? Where would they have gotten their money? What would make them want to participate in this idea? What are their alternatives (in how they spend their money)? Would it be fair to say that if they decided not to take part in this, then the idea wouldn't work?

I appreciate your clarification!