On signaling in philanthropy and the role of Rovas

Jul 10 2024

Recently, an article appeared in Project Syndicate by the Nobel laureate professor Michael Spence, calling for a mechanism that strongly resembles Rovas and certain of its functions. Here is the relevant part from the article (emphasis added):

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While philanthropy is not a substitute for government action in areas like health, education, and the distribution of income and wealth, it can certainly help – if the right incentives are put in place. To this end, we must design institutions that deliver reputational and network benefits to donors supporting causes like poverty reduction and public health. The key missing ingredient appears to be an intermediary that acts as a respected impact investor and forms the core of the signaling mechanism.
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Let's break down the highlighted section:
  • The institution — Rovas seems to be a good fit the institution provided in the desription as it is an intermediary establishing a suitable measure of a person's society-oriented contributions as well as a providing a mechanism for impact investing (among other things).
  • Reputational benefits — Every signal needs a medium. In Rovas, the medium is the Merit score, which is a market-determined measure of an individual's sacrifice of economic value made on behalf of society at large. By being objective and irrevocably attached to an individual the Merit is "honest," which is likely to evolve into a signal of prestige.
  • Network benefits — Once the number of people recognizing the Merit score as a measure of pro-social sacrifice reaches a critical mass, it will start to provide network benefits. It will become a sought-after signal, making the exchange of information about donors and charitable projects more efficient. The Merit score is also a measure of the owner's specific skills, and as such, will provide network benefits outside the domain of philanthropy as well.
  • Impact investing — Rovas has supported investing into projects as a means to increase one's Merit score for some time. This seems to map directly to the concept described by the author.

In summary, Professor Spence's article provides validation for one of the basic concepts of the NEO economic system - that humans are universally motivated to supply labor or give up economic value by the desire to satisfy their basic psychological needs, which include gaining and manifesting prestige. The article also indirectly calls for the establishment of an objective way to measure this signal, which Rovas provides in the Merit score. The Merit score also provides additional information about the domain in which it was earned, making it much more useful than various conspicuous manifestations of wealth.