Nobelists Gary Becker and Richard Posner take a look at Charitable foundations:

The main case for giving tax breaks to individuals who set up foundations, and for exempting from most taxes the incomes that foundations earn, is to encourage decentralized private support of universities, health care, and many other activities, as opposed to relying only on centralized government support of these activities. Universities and other recipients in turn have to compete against each other for funds from the many foundations. I believe that such competition and decentralization of support encourages a more efficient use of resources by recipients, and makes it easier to finance unpopular art, music, or other activities that have difficulty getting support when governments are the dominant source of support. (Becker)

From another perspective:

I agree with Becker that the great strength of charitable foundations, and the principal justification for the tax exemption (though a secondary one is to offset the free-rider problem in charitable giving–if you give to my favorite charity, I benefit, and so the more you give the less I will be inclined to give), are that they bring about a decentralization of charitable giving, breaking what would otherwise be a governmental monopoly and thus reducing the play of politics in charity. In addition, however, to the extent that charitable giving substitutes for government spending, such giving (minus the tax benefits to the giver) represents a form of voluntary taxation, like state lotteries. Given the enormous skewness of incomes in today’s United States, it is good to encourage voluntary taxation of the wealthy. But I would not place much weight on competition by universities and other recipients of charitable giving for foundation grants, since the recipients will compete whatever the source; universities compete for government grants just as they do for private grants. (Posner)

In their full posts, there is more depth, as well as some noteworthy disagreements. My favorite observation comes from Posner’s next line, “a perpetual charitable foundation, however, is a completely irresponsible institution, answerable to nobody.”

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