Are Perpetual Charitable Institutions Irresponsible?

Becker and Posner this week discuss charitable foundations and touch on a point I hadn’t thought much about which are sunset provisions to ensure a charity’s assets are disbursed within a certain time frame. Becker notes that Bill Gates has said that his endowment will be spent within 50 years of the death of the third of his three trustees. Posner explains why a perpetual charitable foundation is "irresponsible":

A perpetual charitable foundation, however, is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets (in both respects differing from universities), and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either. It is not even subject to benchmark competition—that is, evaluation by comparison with similar enterprises—except with regard to the percentage of its expenditures that go to administration (staff salaries and the like) rather than to donees. The puzzle for economics is why these foundations are not total scandals. The solution to the puzzle seems to me twofold: the foundations are controlled by trustees, whose prestige is invested in the success of the foundation; and foundations are constrained by law, as well as by the limited benchmark measure that I mentioned, to give away most of their income, and this limits the ability of staff to appropriate the foundation’s income for its personal benefit.

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