Perpetuity and spend-down: the role of investment and technological transitions in philanthropy

Philanthropy was a dormant subject for economists for a long time. This topic has long been defined not only by solidarity practices and charitable giving, but also by investment. In this respect, it has been historically driven by foundations and their endowments operating in perpetuity. However, in the last couple of decades, the idea of perpetuity in philanthropy has been increasingly questioned, and nowadays many donors are willingly in the process of spending down their endowments and closing down their foundations. To understand the emergence and evolution of philanthropic endowments and their economic implications, this paper extends Hirschman’s analysis of economic development and unbalanced growth, with special attention to the investment and divestment dynamics. Bringing together Hirschman’s insights with more recent works, the paper raises questions and explores criteria that should be addressed in the design of new institutional arrangements that govern the market-philanthropy nexus and its ties to investment and the underlying technological structure. Such arrangements require a broader vision of the economic system to include philanthropy, and they would entail an opportunity to devise new policy instruments.