Organizational Lifespan as Commitment: The Case of Foundations

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.