Guided Consumption Theory: A Virtuous Dance between Altruistic Agents, Economic Discriminators, and Opportunistic Helpers
Please note that we are now using the term "Profit for Good" (here described as Guided Consumption). For the companies that direct all or the vast majority of profits to charities we refer to them as "Profit for Good Companies" or just "Profit for Goods" (here described as Guiding Companies).
Previous posts have set forth the concept of Guided Consumption and provided research supporting the viability of businesses with charities in the equity position (“Guiding Producers”). In this post, I evaluate the agents involved in Guided Consumption, their motives, and why creating the infrastructure enabling Guided Consumption is an extremely high value project.
TLDR: Creating the infrastructure and public awareness enabling Guided Consumption – consumers choosing to direct their purchases through charity-owned businesses- is extremely high value because it accords with the motivations and cost-tolerances of the sets of agents involved. The general public, motivated to do good in low, no, or negative cost situations, is empowered to do good by shifting its purchases: economic discrimination. Other economic actors interacting with Guiding Producers are motivated -either by their own good will or good publicity- to treat Guiding Producers more favorably than normal companies. Altruistic Agents, motivated to maximize impact attained by their resource expenditure, are empowered to do so by creating the infrastructure and public awareness of Guided Consumption. This project is tractable due to the malleability of public awareness and the discoverability of the best contexts for Guiding Producers.
The Main Two Agent Groups (and a Third Minor, but Significant Group)
Altruistic Agents as Builders of the Infrastructure (“AAs”): This set of agents consist of individuals and organizations with a primary motivation of maximizing positive impact. AAs are fine with bearing heavy costs, if those costs correspond with higher utility. Examples of AAs would be philanthropists or those who forgo career paths with higher salaries in favor of career paths that enable the highest expected impact (80,000 Hours is an organization advising individuals on how to plan for a career with the highest expected impact for one’s capabilities). Sometimes an AA is domain specific. Many within the Effective Altruism community consider themselves generally AAs. AAs would play the function of providing resources to create the infrastructure and further the Guided Consumption Movement, if they can be persuaded that this is the best use of their resources.
Ordinary Members of the Public as Economic Discriminators (“EDs"): This is an extraordinarily broad set of agents that have some motivation to do good but are primarily motivated by self-interest. Hence, EDs will do good when it is clear to them that doing so is low cost, no cost, or negative cost (the good action benefits them). I refer to them as Economic Discriminators in this context because that describes their operative behavior in Guided Consumption, but what defines them is their tendency to do good when cost is below a certain low ceiling. Examples of EDs would be individuals who hold a door for a person walking behind them (low-cost), refrain from littering or drunk driving (low or negative cost, incorporating detection/personal harm costs), or people who offer a ride to someone whose destination is on the way to a driver’s destination (low cost). One way of putting how this group will generally behave is “minimally decent.”
Opportunistic Helpers (“OHs")- This set of agents is motivated to help in circumstances, even bearing costs, where they are specially situated to do good. An example might be a criminal defense attorney who represents a family member who otherwise would not be able to afford his/her services. Another example would be one who notices a wallet on the ground and diligently attempts to take appropriate steps to see that it is returned to its owner. The actor passing by the child drowning in Peter Singer’s shallow pond would be an Opportunistic Helper. Many of the actors in the public as well as in the economy are OHs because if they are in special circumstances enabling them to do outsize good, they will do so, even bearing costs. This kind of “helping”, given the multiplier effect granted by the situation, might even be sensible strictly from a self-interest perspective, either to gain approval from others, avoid scorn, and/or get a nice feeling (think the hero wallet returner or the jerk lawyer who wouldn’t help a poor nephew).
Economic Discrimination as a Low/No (Or even Negative) Cost Method of Channeling Producer Surplus
As normal consumers, we often have many choices of products to buy and platforms through which to buy them, often with products of similar feature, quality, and price. Thus, the cost and value you get from choosing one shampoo or dishwashing detergent over another may be extremely similar. And in some contexts, such as in deciding from which agent within the same insurance company to buy, there is virtually no cost from switching from one agent to the other. But on the other side of the transaction, it is the difference between a producer making some profit or zero profit. Thus, a life insurance salesperson will be most interested in you purchasing your policy through him/her although there is little cost to switching to a different agent. However, in most contexts, we don’t know or care about the identities of those enjoying the surplus from our purchases- often, rich investors who constitute shareholders of large companies. This I describe in my long paper as Consumer Counterparty Indifference.
However, if for some reason, a consumer was to prefer one of the producers, (or, the entity(s) to which profit would accrue) this factor could be decisive given the low, zero, or negative switching cost. Perhaps you have a friend who is a barber, and thus you would rather he/she gets the money from your business as opposed to a similarly skilled/priced unknown barber. Critically, because there is a competitive consumer economy where different producers often cannot differentiate themselves meaningfully on quality or price, if one set of producers were to compete effectively on identity, this would enable this set of producers to obtain an outsize portion of the market. This is because often in competitive markets, shifting between producers is low cost, no cost, or negative cost, and thus consideration of profit-recipient identity, or economic discrimination is rational. One set of potential profit-recipients that the general public prefers over the rich investor class is charities, such as those that benefit the global poor.
Guiding Producers as Vessels of Virtuous Discrimination
An entity that could benefit from such positive discrimination would be one in which a charity occupied the profit-beneficiary position, such as shareholder. I call such entities “Guiding Producers” because they provide a path by which consumers can channel the profits from their purchases to a cause they prefer over the default, rich investors that ordinarily benefit. As stated above, ordinary members of the public will do good when they know that it is low cost, no cost or negative cost . One such example of consumers choosing to buy in a manner that benefits a charity is Amazon Smile. Thus, at the very least, Guiding Producers should be extremely effective in contexts where economic discrimination is possible.
Guiding Producers also benefit from Opportunistic Helpers, in the forms of noncompeting economic actors in the sphere who admire and/or wish to benefit from association with companies that work for charities. The power of this third set of actors became apparent to me from discussion with Vincent van der Holst, who runs BOAS, a platform selling sustainable kids products directing all profits to charities. Consultants that would normally charge hundreds of dollars per hour offered their counsel for free. Suppliers of the goods offer higher commissions than competitors (BOAS generates revenue by charging a commission for brands to sell on its platform). Individuals were willing to work for BOAS as volunteers or at lower rates (workers, depending on the situation, could be categorized as AAs, OHs, or EDs). The value created by OHs can either create higher profits for Guiding Producers or can be passed on to the consumer to make products more attractive along various dimensions: price, convenience, quality, etc. The gains derived from OHs is what could enable negative cost of discrimination by consumers.
P- The Monetary Value of Economic Discrimination and Economic Helping for Guiding Producers
Even considering advantages from economic discrimination and opportunistic helping, to motivate an Altruistic Agent, the cost in resources must be justified in terms of a high impact. The following formula describes the value added by a Guiding Producer.
F(C) = F(K) + P
Where F(C) is the market capitalization of a firm capitalized entirely by equity benefiting a charity (charitable equity).
F(K) is the market capitalization of an identical firm capitalized entirely by private equity.
P is the monetary value from to economic discrimination and opportunistic helping because of the popularity of charities over private investors.
(Note: the names of variables we use to express the positive discrimination in favor of charities may change in the future, as to whether we express this difference as a multiple or a sum).
Thus, the key question on whether it makes sense for AAs to deploy their resources to creating Guiding Producers depends chiefly on the value of P. Also important is the cost of acquiring a firm and creating a Guiding Producer relative to the cost F(K). Regarding the second question, a premium could potentially be avoided and perhaps even a discount could be secured by creating a reverse bidding war by incumbent companies, out of fear of the entry of a Guiding Producer creation and market expansion. But this question of the relationship between acquisition cost and F(K) (whether there would be a premium or discount) is a topic for another time. The threshold question is the ratio between P and acquisition cost, or the “P-Ratio.”
If the cumulative value of economic discrimination and opportunistic helping is modest, perhaps the P-Ratio is 0.05 (5% value add vs pre-acquisition value). However, if there are few means for competitors of a Guiding Producer to favorably differentiate, a Guiding Producer may be able to expand market-share post-acquisition, potentially moving from a minority position to a near-monopoly. In such a circumstance, a P-Ratio might be greater than one. An environment where there are opportunities for Guiding Producer creation with a P-Ratio of 1 or even a multiple of 1 change the value proposition for AAs from being a potentially valuable investment opportunity on behalf of charities to the ingredients for a revolution. This is because a P-Ratio of greater than 1 almost surely enables the Golden Formula, incentivizing AAs to create Guiding Producers with the funds they would otherwise directly donate to a given charity. The Golden Formula follows:
M(D) > D
“D” is the amount of funds used to capitalize a Guiding Producer (which could otherwise have been donated).
“M(D)” is the amount of funds almost immediately available for donation after the capitalization of a Guiding Producer, such as by borrowing against equity appreciation.
Altruistic Agents, when deploying funds for charitable use, are chiefly interested in maximizing the funds that they can make available to the charity they wish to support. Consequently, if they can generate more funds for a charity by acquiring an existing firm and converting it to a Guiding Producer than through direct donation, they will. If a firm has a P-Ratio of higher than 1, AAs will either be able to create Guiding Producers and borrow against equity an amount that exceeds their donation amount (servicing the debt over time through the Guiding Producer) or borrow to generate the funds for the acquisition.
The Factors Comprising a P-Value, Public Awareness and Economic Context are Malleable
Given that the value of the project depends on the monetary value of preferential treatment of Guiding Producers, evaluating what makes for a high P-value bears analysis. The value of P is a function of public awareness of the ability to help charities through normal purchasing of goods and services, or “A”, and the context/situation in which a Guiding Producer would be operating or “S.” A Guiding Producer in a low-differentiation space, such that it can present a “no-brainer” to a consumer (why not get the same priced extremely similar product and help a charity?) could be said to have a high S-factor, whereas a situation like a restaurant might have a low S-factor because variables such as food selection, location, ambience, and service would like overwhelm the fact that a charity is the profit recipient. Hence,
F(C) = F(K) + P(A, S)
Both components of P, Public Awareness (“A”) and Guiding Producer Context/Situation (“S”) are potentially within the power of Altruistic Agents to affect.
A, or Public Awareness, can be augmented by informing the public regarding their ability to help charities rather than further enriching traditional investors Promising to this project is the enticing motivation to the public not just of their ability to help worthy charities without sacrifice, but also to stick it to wealthy shareholders. This public awareness campaign is likely to be further buoyed by celebrities, thought leaders, and other influential people. For instance, Sam Harris has specifically endorsed ticket-seller Guiding Producer, Humanitix, remarking that it is “an inspiring idea for a company – and a great ethical advance over the competition.” It is true that the global public consciousness is capricious and mysterious. Attempts to mobilize it are seldom easy. But a simple and modest ask of the everyman – change the world without changing your habits- is a compelling message that at least has a reasonable chance of penetrating this fog.
S, the degree of advantage conferred by being a Guiding Producer in a particular situation/context is capable of discovery. It then can be exploited by the set of actors promoting Guided Consumption. As of now, although there are theories as to the contexts that would offer significant advantage – such as contexts of low-product differentiation such that Guiding Producers present a “no-brainer” decision before the consumer – we have yet to discover the most auspicious environments for Guiding Producers. However, we can find them. Indeed, if an organization was dedicated to the exploration of contexts for Guiding Producers and using the data generated to evaluate the most fruitful contexts, it would allow the expansion of Guiding Producers into the contexts that they are most likely to thrive.
The Consumer Power Initiative and Guiding Producer Partners, such as BOAS, as Promoters of Global P-Value Growth
The Consumer Power Initiative has its purpose as promoting the growth of P-Value through its three core functions: Movement Building, Guiding Producer Cultivation, and Research (hyperlinks to the project list correspondent to each core function). Through direct movement building, CPI augments A by informing the public of their ability to stick it to rich investors and support charities by channeling their purchases. Guiding Producer Cultivation (“GPC”) – networking, supporting, and creating Guiding Producers- furthers A by creating concrete examples and a way for the public to participate in Guided Consumption and influencing existing Guiding Producers to proclaim this status and join the broader project. GPC also provides data from which we can learn where Guiding Producers are the most effective, furthering S. Research evaluates the data from GPC to determine the best contexts for Guiding Producers, furthering S, as well as other critical questions to Guided Consumption. Thus, by facilitating the growth of P-Value, CPI both discovers and expands the contexts in which the Golden Formula applies.
The expansion and rational exploitation of high P-Value contexts would be revolutionary because of its interaction with the broader set of AAs, where they are motivated to maximize funding for a popular charity, such as one promoting global health and development. The amount of equity value that could be created for a charity could be expressed as D * (1+(P-Ratio)). Thus, if the P-Ratio was zero (no value created by being a Guiding Producer), the available equity would simply be the amount paid (or less, if a premium was paid). But on the other hand, if a P-Ratio is 2, the equity value created with be 3x the cost of acquisition. In such a case, a donation in excess of the acquisition cost by borrowing against equity is almost certainly possible, enabling the Golden Formula. Thus, the success of CPI and partners such as BOAS would motivate AAs broadly to create Guiding Producers.
Implications of a Guiding Producer Proliferation
With global market capitalization in the 80-100T range and global net profits in the 8-10T range, a world in which AAs can capitalize on robust public awareness and knowledge of the contexts in which Guiding Producers enjoy the greatest advantages is one where a profound positive change in conditions is possible. With 10% of global net profits going to popular effective charities, imagine the implications for global poverty or factory farming. Although ambitious, this possibility is reasonable in light of the motivations of the sets of agents involved. The general consumer public, if enabled to, will discriminate in favor of charities over rich shareholders because it will reliably do good where it knows of an opportunity to do good that is low cost, no cost, or negative cost. Guiding Producers will offer the opportunity for other situational actors in the economy to exploit an opportunity to do a lot of good. And finally, Altruistic Agents, the philanthropists and those who otherwise dedicate their lives to making a difference, will create Guiding Producers if they can see that it is the most effective way to help charities. Regarding an economy that works for charities instead of rich investors: if we build it, they will come.
1. There are costs/disadvantages to being a Guiding Producer in that agents of normal company have signals from normal shareholders that would not be operative with a Guiding Producer where the vast majority of shares are retained by one party.
Response: The net effect of having charities in the equity position on corporate governance appears to be positive. This post references much of the literature on this question.
2. Consumers and other economic actors won’t discriminate in favor of companies that work for charities.
Response: It doesn’t make much sense to think that consumers and other economic actors will put zero weight on profit going to charities vs traditional investors. The question is the cost of making the public aware of this fact and the cost of discovering the most auspicious contexts. In relation to the potential gain, that being in the trillions of dollars, these marketing and discovery costs are a pittance, even in the millions of dollars.
3. There is a catch-22: Altruistic Agents won’t create the infrastructure for Guided Consumption until the general public shows that it will economically discriminate in favor of Guiding Producers and the general public won’t be able to demonstrate this economic discrimination until the infrastructure is built.
Response: This is Where the Consumer Power Initiative and early Guiding Producer Partners fit in. We are building the movement and working to create the incremental steps to build the movement and create signals to the broader AA community of the potential of our project. That is why your support is critical. See below for how to help.
Guided Consumption is a powerful tool because it is rational for the involved sets of agents given their motivations and tolerances. Economic discrimination in favor of charities is capable of being low-cost, no cost, or negative cost for the general public which will generally do good under those conditions. Creating awareness and infrastructure is highly effective given the malleability of public awareness levels and discoverability of ideal contexts for Guided Consumption. Being the catalysts that enable signaling between AAs and the general public is extremely high EV. Guided Consumption is capable of being utilized by groups promoting other charities, but this author hopes that EAs will develop a Manhattan Project to let EA have strong influence on the charities that the profits from our multi-trillion dollar economies support.
To learn how to help create an economy where profits benefit Effective Charities and important problems like global poverty and factory farming can be addressed by adequate funding of effective charities, please check out our second newsletter and follow us on Social Media. CEO Brad West can be reached at firstname.lastname@example.org
BOAS is hiring interns and looking for a CTO. We're also still looking for funding. If you are a parent in Europe, you may consider ordering from BOAS instead of Amazon. If you can help please email me on vin at boas.co
Of particular value would be assistance in networking within the Effective Altruism Community. As noted above, Sam Harris has already endorsed Humanitix and expressed admiration for the model of companies working for charities. The Effective Altruism community has the network, skills, funds, and alignment: help us leverage it to make a world in which the profits from our economies work for our values.
Now using formula F(G) = F(K) * C
F(G) is a Profit for Good firm where profit benefits a popular charity
F(K) is an identical firm with normal equity
C is the multiplier for preference by economic actors for the popular charities, Charity Choice