Defining Impact Funding Systems (IFSs)
An IFS consists of
- Actors: Contributors, funders, evaluators, and beneficiaries
- Funding mechanisms: Grants, bounties, retrospective funding, etc.
- Coordination mechanisms: Roadmapping, communication forums, etc.
- A goal: Maximize the domain-specific positive value created (impact)
The goal will be specific to the impact area, e.g. prevent existential risks from artificial intelligence (AI) would be the goal for the impact area “AI safety.” To achieve these goals, skilled contributors must work with high effort on promising projects. Additionally, for those projects that create impact continuously, sufficient income streams are necessary to cover both their ongoing operating expenses and contributors’ upside incentives.
Actors in IFSs
| Type | Subtype | Description |
|---|---|---|
| 1. Contributors | People or organizations who do the work | |
| 2. Funders | Prospective funders | People or organizations who fund work before it is done |
| Retrospective funders | People or organizations who fund work after it is done | |
| 3. Evaluators | Scouts | People or organizations who evaluate the potential impact of work before it is done |
| Auditors | People or organizations who evaluate the impact of work after it is done | |
| 4. Beneficiaries | People or objects that are impacted by the work |
Guiding questions for designing IFSs
- Projects: How can we improve the chances that the most promising projects are worked on?
- Talent & resources: How can we attract top talent to contribute to the most promising projects and provide them with the necessary resources?
- Effort: How can we reward contributors for their impact on outcomes?
- Sustainable income: How can we create recurring income streams and financial sustainability for impactful projects?
Markets have been proven very powerful in answering these questions if they are directed towards maximizing profits. As we are directing systems towards maximizing impact, these answers become more challenging. In particular, in an IFS we are facing coordination and incentive problems in funding impact, such as the free-rider problem.