Here’s a charity you might not be aware of: a math teacher in a Rochester, NY, public school is accepting donations to enable the class to conduct “experiments in calculus” as part of the math curriculum. The campaign goal is $247 and charitable donations have covered 46% of that amount so far. Only about $125 to go!

How do I know about this charity? Through the marketplace for charitable donations at DonorsChoose.org, a website that specializes in connecting donors with opportunities for charitable donations.

Columbia University held a “Hacking Philanthropy” mini-conference this past September (2007) and published the transcript of the discussions that took place there. “Hacking” is a term of respect: it refers to an effective, innovative and efficient solution to a challenging problem. “Hacking philanthropy” represents a new movement in which web technology is doing for the world of charitable donations what it has already done for many for-profit businesses: it is providing a marketplace where donors and charities communicate directly with each other.

Commentary on the conference pointed out how radical a departure a marketplace is from the more traditional large-charity-based pattern of giving. The degree of departure is illustrated by the fact that the top 25 charities (in terms of total annual donations received) in the Philanthropy 400 are the same today as they were 40 years ago with the exception of only two new entries (Habitat for Humanity and AmeriCares are the only ones to have entered the top 25 since 1965). Compare this stability to the top 25 for-profit companies in 1965 and today in the Forbes 100 list, where a third of today’s top 25 didn’t exist 40 years ago.

The Philanthropy 400 received $62.7 billion in donations in 2006, up 13% from the year before. This represents more than one-fourth of the total donations made that year. The Chronicle of Philanthropy charges a fee for the full listing of the top 400 but publishes highlights from the list. The top spot on the list for 2006 is the United Way with $4 billion in donations; the Salvation Army, AmeriCares, the American Red Cross, and the American Cancer Society round out the top five.

Why philanthropic markets are emerging now as an alternative to the big charities was debated at the Columbia conference. One theory is that, much as the 1937 article on the theory of the firm pointed to the importance of transaction costs in determining the need for an intermediary in for-profit economies, the same principle applies in philanthropy: as transactions (and connectivity) costs plunge due to decreased computing and communication costs, a marketplace connecting donors and recipients can replace firms (charities) that used to provide that service for a fee.

A donation of $25 to a large charity may not feel like much, but it represents 10% of the total campaign for a Rochester, NY, calculus class charity – that appeals to some donors. A philanthropic (virtual) marketplace makes that donation a real option for many givers. Emerging markets like DonorsChoose.org may become the new organizing principle for philanthropy much as free markets have shaped for-profit economic activity. Charles Best of DonorsChoose.org explains why he thinks the marketplace is a more effective philanthropic mechanism:

We push production to the front-end user in a way that makes them feel like they are partners with us. So that starts with frontline classroom teachers being the ones to come up with the micro solutions that will most help their students. And we actually see that these teachers come up with ideas that are far more innovative and creative than any top-down program would be. And we turn to those teachers to help screen and authenticate proposals submitted by teachers in other regions. We turn to the students who benefited to describe the impact of the project rather than having a staff person go in and record things….

One venture capitalist is already sold on this market.