Donation insurance

by vipulnaik 20th Dec 20159 comments

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This post is from Linchuan Zhang, who asked me to post this on his behalf. You can contact him at email.linch@gmail.com to discuss more. He'll also read the comments here. You can also collaborate with him on the original document on HackPad here.

Need

It is generally understood within the effective altruism community that people make suboptimal decisions when they do not have financial security, Further, this lack of option value is sufficiently harmful that many prominent EAs argue for having a "runway," ie, enough personal savings to handle the risks that come along as a natural part of life. See, for instance, this 80000 Hours post. However, since it's often claimed (though not definitively proven/no consensus) that there's a significant "haste consideration" in donating now instead of later, the opportunity costs of holding large amounts of liquid money on hand is nontrivial. One possible solution is "a community insurance scheme", outlined in the bottom of the article above. However, this "scheme has a serious challenge – who decides whether someone really deserved the insurance payout, and who is freeloading – but is potentially much more efficient."

I think we can improve on this.

Proposed Solution

I propose the following: Specific donations are insured in a one-directional, two-party contract. 

Here's how it works: Person A is debating how much of her $18,000 to donate to the Against Malaria Foundation. She originally wants to save $9,000 in the bank (enough to last her around 6 months). Hearing this, Person B suggest that A only saves 4000 dollars in the bank, B is willing to insure donations to the AMF up to 6,000 for 12 months. B specifies a list of conditions that he's willing to insure A for (including termination of employment, voluntary or otherwise, significant physical or personal illness, death in a family, etc), wherein he'll give A $6,000 back within 30 days of any of the triggers happening. A agrees, and both the agreement and A's donation is publicly logged online.

If none of the conditions trigger in the next 12 months, then Person B managed to help Person A help the AMF without any cost to himself! Yay! 

If any of those conditions trigger in the next 12 months, A can choose to either i)not get insurance because she doesn't need it, or, ii)as is more likely the case, she will contact B (whether/what forms of proof are necessary depends on A/B's relationship with each other). B actually only has $4000 in savings, but he gets paid $3,000 after taxes/personal consumption per month. B waits until he gets paid, and then he gives A $6000, leaving 1,000 in the bank. A is glad to have the insurance. B still needs to tough out 1 month with low savings, but the statistical odds of both A and B being in financial trouble is far lower than A alone.  

One Caveat: The same donation cannot be insured by two different parties, to prevent potential abuse. 
Also, If A insures B, B should not insure A within the same time period. 

Benefits 

  • Almost certain to have greater total donations (at least among EAs). Donation insurers have an easy way to increase donations on expectation
  • Helps with community.
  • People can feel safer and are thus more likely to take risks.
  • People who donate a lot wouldn't be SOL or be forced to rely on the generosity of family, banks or friends. 

Potential Risks

  • Abuse : Risk of traditional abuse/moral hazard substantially lower than a traditional community insurance scheme (because you aren't actually gaining any additional money, you're just getting your donation money back). 
  • Counterparty Risks: It's possible that B insures A, but B also took a hit to his financial position. However, B can insure his donations too. The fact that these insurance policies are always 2-party and single-dimensional reduces this greatly.
  • Naive EV utilitarians may take advantage of this to claim donation insurance for superficial problems just so they can donate more...hopefully we don't have so many dicks in the movement though. 
  • Obviously if you believe in a "dishaste consideration", you should not promote easier ways to donate now as opposed to later.