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Organizational Lifespan as Commitment: The Case of Foundations

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  • Christian Jaag

Abstract

An organization may bind future decision makers through a commitment over its own lifespan. This paper studies that choice for philanthropic foundations. A foundation may commit to terminate, commit to institutional continuity, or leave termination to future discretion. Discretion preserves state-contingent stopping. Perpetuity instead raises investment in foundation-specific organizational capital whose return is partly lost upon termination. A terminal commitment limits excessive continuation when future governing bodies obtain private benefits from organizational survival. A canonical model yields nonempty regions in which each regime is optimal, while a finite-horizon extension endogenizes the terminal date. Perpetuity is optimal when organizational capital is sufficiently productive relative to the cost of continuing in bad states; discretion is optimal when stopping flexibility is valuable and governance is aligned; a finite lifespan is optimal when survival incentives create sufficiently costly entrenchment. Organizational lifespan is therefore a distinct commitment margin.

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  • Christian Jaag, 2026. "Organizational Lifespan as Commitment: The Case of Foundations," Papers 2610.08447, arXiv.org.
    • Handle: RePEc:arx:papers:2610.08447
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    1. Jeffrey R. Brown & Stephen G. Dimmock & Jun-Koo Kang & Scott J. Weisbenner, 2014. "How University Endowments Respond to Financial Market Shocks: Evidence and Implications," American Economic Review, American Economic Association, vol. 104(3), pages 931-962, March.
    2. Brigitte Roth Tran, 2019. "Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 241-256, September.
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