I don't quite understand this. Are you objecting to the quoted argument?

Yes, but I should have been more specific, and I think I probably focused overly much on the sentence about deviation and arbitrage. (I'm blaming jet lag.)

I agree that, if someone can produce certificates at less than what they perceive as a stable-ish price, they will produce more than the price will eventually fall. What I disagree with is the idea (familiar from product markets) that deviation will induce arbitrage (i.e. that an increase in price will induce greater supply of new activities that result in certificates). This is generally untrue in the short term for markets where there are large stocks being held. Money is a classic example; during some periods, precious metals and diamonds were as well. The stocks act as a shock absorber.

The mechanism is that a price increase will induce holders of stocks to sell them. It won't induce new production until the holders of stock willing to sell at a slightly higher price are exhausted. Of course, this is conditioned on certificates being like these things where people hold them as stocks for later resale, rather than "consuming" them. If the certificates time out, then that would be the equivalent of them being consumed. Likewise if your prediction is right that there are a group of end-purchasers who never resell them.

(In financial markets, market-making intermediaries hold large stocks of financial instruments. I would imagine that a certificates market would need a similar group of market-makers to be liquid. Ideally, this can be a good thing, because the intermediaries can smooth out short term price fluctuations and send a more stable signal to organizations. But, on top of the intermediaries, you have the organizations that hold certificates for the long term.)

Additionally, I was focusing on risk to the system. One systemic risk is that if a holder of certificates runs into financial trouble (which happens to non-profits), they may be forced to dump a large number of certificates on the market.

The validity issue is similar. I'm not concerned if a specific certificate turned out to be false. What would be a systemic risk is the perception that many certificates are false. That would lead holders of certificates to dump them on the market, so that they can reinvest their philanthropic capital into something worthy. (Remember that trustees have a fiduciary duty to protect the finances of the charity, so they can't just shrug and live with it like you or I might.)

I think there is a material distinction between the situations you describe. GiveWell stands behind a very few efforts at one time. If I want to give, I can easily do a bit of research myself about the organizations that they endorse. If I understand the certificates proposal proposal, the core point is to encompass just about anyone who wants to claim that they did something good. Presumably, that would give rise to organizations that validate those claims. But that seems a quite different undertaking from what GiveWell does today: it would require an organizational structure for mass production. If money is involved, then you get commercial pressures on standards; if money is not involved, you still get political and social pressures. And, if it turns out that the certificate of impact "ratings agencies" were sloppy or used lax standards, then the market suddenly comes to believe that it is holding certificates that don't represent the activities that the holders were organized to promote. If I was on the board of trustees, I'd dump the certificates and redeploy what philanthropic capital I can salvage. When I do that, and others see the price falling, they might follow suit. And then there is the impact on the organizations that had planned activities on the assumption that they could sell the resulting certificates on the market to cover their costs.

One way to eliminate all of these risks is to make it so that people who buy to hold can't resell. Then it is much, much more like a grant.