For all that no one would have deliberately designed a system which worked like this, the rise of the DAFs has turned out, improbably, to be good, not bad, for America’s charitable sector.

The big argument is a pretty simple one: DAFs act like dams in the stream of funds flowing to charitable causes. Instead of the money going to straight to actual charities, it gets backed up into rapidly-growing reservoirs, where it does no good for anybody really except the people managing the funds.

Left to their own devices, it turns out, people are much more generous than they would be were they instructed to give away a minimum amount.

Right now, during an economic boom with a soaring stock market, people are giving record amounts to charity. But booms come to an end, and when the bull market becomes a bear market, charities will naturally expect their income to fall. But the DAFs will still be flowing, and that money might help make up some of the shortfall. In lean years, it’s entirely predictable that DAF outflows will exceed DAF inflows – and that makes them a useful countercyclical smoothing mechanism.

Read the full article on donor-advised funds by Felix Salmon at Cause and Effect.