Midsize nonprofits in the United States offer some of the most innovative solutions to our most pressing problems, but they are starved for growth funding because no efficient market mechanism exists to guide capital to them. In the absence of reliable information about the relative performance of nonprofits, billions of philanthropic dollars annually are distributed haphazardly among more than 1.5 million organizations, some deserving, some less so. One remedy may lie in the celebrated “wisdom of crowds”: Prediction markets could consolidate information about which nonprofits provide the highest social returns on investment, thus guiding donors to the most attractive opportunities.
A version of this article appeared in the October 2008 issue of Harvard Business Review.
