Crypto loves impact markets: Notes from Schelling Point Bogotá

post by Rachel Shu (wearsshoes) · 2022-10-22T15:58:39.101Z · LW · GW · 2 comments

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comment by James Grugett (james-grugett) · 2022-10-23T23:41:53.676Z · LW(p) · GW(p)

Nice writeup! Impact markets are a really cool idea that could plausibly make public goods funding much more efficient.

Still, I have doubts. Funding decisions ultimately come down to someone doing an impact analysis, and let's just say that's a really hard job.

Getting to the correct order of magnitude of impact for a project like, say, deworming, would require a lot of careful data collection and analysis and maybe even interviewing a random sample of those affected over time. And even then, it's easy to be wrong.

Moreover, the incentives are not right. A project seeking the highest price for their impact certs could invest in a PR campaign about how much good they are doing. Instead of pursuing impact, they could pursue perception of impact. It's easier for them to tweak and cherry-pick their stats to show they are doing a lot of good than actually doing that good.

In other words, impact markets have disconnected their funding source from their customers. When customers are not paying directly for the service, there's no feedback on whether that service is good or not.

Summarizing the problems:

  • Impact analysis is hard to do accurately
  • Projects will find it easier to cheat than achieve real impact
  • Funders will be tempted to donate based on their own interests, like getting a PR story about how they saved the world
  • Funders are likely to have counter-productive goals, which could be dangerous if impact markets work

For-profit companies by-and-large side-step these problems because when the customer is voluntarily paying for a good or service that is evidence that utility was created for the customer. Businesses thus have decentralized verification of positive utility.

A surprising but important consequence of needing to profit is that company goals are immediately constrained to ones that mostly help the world.

The same cannot be said of impact markets. And this is what I think is the strongest objection to impact markets: even if they are an efficient tool for implementing funders' goals, that power could be net-negative if funders are misaligned. Worse, it could be hard to figure out they are misaligned if the primary incentive of projects is to appear good.

Ordering the world correctly is threading a needle. There are far more ways to destroy value than create it. Human ideologies change by the season, frequently contradicting past beliefs. We should be careful cranking up the power-level of tools that bypass our best method of utility-verification: decentralized self-interest.

Replies from: wearsshoes
↑ comment by Rachel Shu (wearsshoes) · 2022-10-26T21:17:47.810Z · LW(p) · GW(p)

You correctly imply something worth restating clearly: despite their initial framing, impact markets are not a way to achieve public goods per se, they are a way to efficiently achieve funder goals in contexts where the path to that goal is uncertain, there are many plausible options, and there is lots of information that can be potentially priced into the market about those options.

With some impact market designs decentralized self interest can in fact come into play, perhaps in the form of bounty pools pledged into escrow by some subset of the people who would benefit from the existence of the public good they are offering the bounty for. In this case funders have a vested interest in what is achieved, and will evaluate based on such. Maybe in the long run markets that enable such a design will gain reputability relative to markets solely funded and assessed by fly-by philanthropists.

I agree with you that disinterested funders often end up having counterproductive goals, although not in all domains. The above example of generic pharmaceutical repurposing trials might be such, where the market can bear useful information about which of many interventions would have the highest impact and chance of success, but the work to achieve that goal is kind of hard to do serious harm with, given that the risk profiles of those drugs is already well quantified. In such cases I see especially little risk to encouraging philanthropy.

If some funder intentionally wishes to achieve nefarious goals with impact markets, I admit the existence of impact market infrastructure might facilitate that. But we have legal and social tools to counteract bad ends and I don’t think that impact markets are so powerful as to enable an end run around these.