The efficiency of large(r) endowments: the optimal endowment is bigger than you might think

Kurt W. Rotthoff

Applied Economics Letters, 2020, vol. 27, issue 16, 1362-1365

Abstract: This study argues that endowments can be efficient, both for a finite-lived and infinitely-lived agent. When the lost utility from forgone consumption is less than the discounted utility brought by the cash flows paid throughout the endowment, endowments are utility-enhancing. Given that this can be utility enhancing for a finite-lived person, the direct connection can be made to an infinitely-lived agent who would receive utility enhancement through an endowment, such as a university. Given the recent political push to force well-endowed universities to spend down their endowments, displaying how an endowment’s existence can be efficient is important for policy-makers.

Date: 2020
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DOI: 10.1080/13504851.2019.1682507

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