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Paper Spotlight: Social Change through Financial Innovation: Evidence from Donor-Advised Funds

Jillian Grennan

Donor-advised funds (DAFs), important vehicles for philanthropic giving in the United States, have grown significantly in the recent past and continue to do so. DAFs are different from traditional charities because of the inherent flexibility contained in their structures. Of particular importance is the possibility given to donors to “give now, decide later.” In the RCFS paper “Social Change through Financial Innovation: Evidence from Donor-Advised Funds,” Jillian Grennan uses a novel dataset on the universe of 4,209 unique DAF sponsors from 2013 to 2018 to explore how DAF characteristics are associated with social progress. She shows that a number of features can explain why DAFs have grown so much in the recent past: access to modern financial technology tools; focus on diversity, equity, and inclusion in their grant making; and the possibility of liquidity transformation for noncash gifts. Overall, these features reduce important frictions in charity giving, thus reducing financial constraints in this sector. Grennan also finds that some of these features are associated with potential social benefits. A notable example is the positive effect of innovative DAFs on the value-weighted share of grant dollars channeled to charities in high-inequality areas. There is also a positive impact of innovative DAFs on funding for the most efficient charities, and during times of greater need. Overall, these results on DAFs constitute the first type of systematic evidence about such vehicles, and they can help us understand whether such vehicles can promote social change through efficient philanthropic funding.

Spotlight by Isil Erel
Photo courtesy of Jillian Grennan