Gordon Mohr just pointed me at a profile of group funding startup ChipIn. Unlike some others who have thought of this, ChipIn sees a big market opportunity.
Hopefully they’ll have great success and pursue interesting mechanisms for funding public goods.
ChipIn has a blog.
There were a surprising number of panels more or less concerning entrepreneurship. I only attended one of these, Sink or Swim: The Five Most Important Startup Decisions. It was very mildly amusing but as far as I could tell the only important decision discussed was whether to look for outside funding or not, a well-trod topic if there ever was one. There was even one panel on Selling (Big Ideas to Big Clients).
I understand that Creative Commons was mentioned in passing on many panels. Attendees coming to our booth were much better informed than in years past, part of a greater trend.
The Digital Preservation and Blogs panel I was on was interesting for the self-selection of the audience — I imagine every librarian and historian attending SXSW were present. A writeup, photo, and my narrow take.
Both accepted panels I helped conceive went very well, especially Open Science. Though an outlier for SXSW the audience Q&A as high quality. Moderator John Wilbanks did a great job of keeping a diverse panel (open access journal editor, synthetic biologist, IT standards person, and VC) on point.
Commons-Based Business Models included Ian Clarke of Revver, which encourages sharing of short videos with an unobtrusive advertisement at the end under a CC license that does not permit derivative works. This licensing choice was made so that stripping out the advertisement is not permitted. Jimmy Wales challenged Clarke to think about opening up some content on an experimental basis. Sounds like a good idea to me. I suggested from the audience that attribution can require a link back to Revver, so even modified videos are valuable. Clarke responded that advertising at a link away is far less valuable. True, but the question is whether derivative works that could not otherwise exist become popular enough to outweigh those that merely remove advertising. I suspect many derivatives would be uploaded directly to Revver, allowing the company and original creators to take full advantage of additional revenue and to become the leading site for explicit remixing of video, a la ccMixter for audio. Seems worth an experiment — Revver is in no danger of becoming the leading video site at the current rate.
I also asked Clarke about interest in his FairShare patronage system. He said Revver is aimed at the same problem (funding creators) but was easier to implement. In the same vein I met John Pratt of Fundable, which is based in Austin. I got the impression he didn’t think the service could be viral (I disagree). I’ve written about FairShare, Fundable and related ideas several times in the past, mostly linked to in my Public Goods Group Shopping post and its comments. The field is ripe for a really good service.
The EFF/CC party was very well attended, even not considering its obscure location (an Elks club). In the middle of the facility was a room of Elks members, playing cards and other games, oblivious to the SXSW crowd that outnumbered Elks even in that room. I gave a very brief thank-you speech for CC, which I closed with a prayer (because we were in Texas) to J.R. “Bob” Dobbs (because we were in Austin).
At the end of the trade show Rob Kaye alerted me to the giveaway of every book at a well-respected computer publisher’s booth to “cool geeks” or similar. 5-10 years ago this would’ve really excited me, but this time I was mostly concerned about bulk and weight. I took a few. I suspect they’ll be among the last computer books I obtain, free or otherwise.
James Surowiecki gave a presentation which I did not attend but I hear focused on prediction markets. I should’ve made the time to attend simply to see the crowd reaction. Several of the latest sites cropping up in that field certainly look like they were designed by potential SXSW attendees — circa 2004/5 generically attractive web applications. I should have some posts on that topic soon, starting with Chris F. Masse’s 2005 Awards.
Only one of each, according to me, highly subjective:
Technology: Danny Ayers’ Raw provides one stop for very well done semantic web (and nearby) news and analysis, written at a level perfect for me. He also has a knack for posting about obscure (to me) topics I’ve wondered about recently, or will soon, most recently about accounting for whether something is known.
Policy: Ronnie Horesh doesn’t post all that often and his Social Policy Bonds Blog is mostly about one topic. Regardless of what you think of his proposed implementation, Horesh’s mantra, that policies should be subordinated to outcomes, is so simple, obvious, and rarely followed, that it needs to be heard around the world. Here’s to a great new year.
Ideas: Brad Templeton posts (mostly good) Brad Ideas. Many are moderately ambitious, few are crazy. Executives with more ambition than imagination (especially airline executives), please read Templeton’s blog. The most recent Brad Idea, that crash avoidance technology could be financially justified by lower insurance rates, is less concrete than most.
Sorry, no recommendations for celebrity gossip, sex, photo, conspiracy, spam/seo/marketing, or war blogs.
Giving and asking for recommendations for worthy charitable donations seems to be popular this time of year, so I’ll do both, following my earlier unsolicited financial advice.
Excepting the very laws of nature (see arch anarchy), aging and its resulting suffering and death is the greatest oppressor of humanity. As far as I know Aubrey de Grey’s Methuselah Mouse Prize/Foundation is the only organization making a direct assault on aging, so I advise giving generously. Fight Aging! is the place to watch for new anti-aging philanthropy.
The most important human-on-human oppression to end, in the U.S. at least, is the drug war (which directly causes oppression in other jurisdictions as well). I’ve only mentioned this in passing here. There’s too much to say. The Drug Reform Coordination Network is saying some of it. The Marijuana Policy Project seems to be spearheading state level liberalization initiatives. See MPP’s 2006 plan. I met MPP founder Rob Kampia a year or so ago and was left with a good impression of the organization.
Wikipedia is the current exemplar of the anti-authoritarian age and I love their transparency.
Finally, you could help pay my salary at Creative Commons, more in these letters.
…
I’d really prefer to give entirely outside the U.S. and other wealthy jurisdictions. However, I’m not interested in any organization that gives direct aid (reactionary, low long term impact), supports education (feel good, low long term impact), exhibits economic neanderthalism, has religious or social conservative ties, or is a shill for U.S. foreign policy in the areas of drugs, terror, or intellectual property. I am looking for organizations that support autonomous liberalization or any of the goals exemplified by the organizations I already support above. Suggestions?
I suppose supporting prizes is one means of donating without respect to jurisdiction. In cases were low cost is important, researchers in cheap areas will tend to win.
I’d also prefer to give via some innovative mechanism. We’ll see what the new year brings.
…
Wikipedia chief considers taking ads (via Boing Boing) says that at current traffic levels, Wikipedia could generate hundreds of millions of dollars a year by running ads. There are strong objections to running ads from the community, but that is a staggering number for a tiny nonprofit, an annual amount that would be surpassed only by the wealthiest foundations. It could fund a staggering Wikimedia Foundation bureaucracy, or it could fund additional free knowledge projects. Wikipedia founder Jimmy Wales has asked what will be free. Would an annual hundred million dollar budget increase the odds of those predictions? One way to find out before actually trying.
…
Of course I expect all of my donations to have imperceptible impact, almost as imperceptible as voting. But it’s all about expression. I’ve increased my expressive value by including a donor comment — “in loving memory of Άναξιμένης” — with my Wikipedia donation. I got an expressive boost when my comment was chosen for highlighting.
(Anaximenes of Miletus was a pupil or contemporary of Thales and has a cooler sounding name. As a kid I’d dedicate donations to Alexander the Great, but I now know better.)
I expected to enjoy Accelerando by Charles Stross and have a really hard time finishing Down and Out in the Magic Kingdom by Cory Doctorow. The former includes cool stuff like mind uploading, space colonization, and singularity. The latter is set in an incredibly challenging environment (in terms of holding my interest)–a theme park. I experienced the reverse.
Manfred Macx, an open source entrepreneur of the future (very approximately), has a kid with his IRS agent luddite wife. They and their descendents carry their family squabbles across the universe and singularity. As this incredibly non-interesting story unfolds, Accelerando takes every opportunity to reference dot com bubble, transhumanist, and obscure political cliches and inside jokes, without any real depth.
Accelerando was originally written as ten stories, many of which won awards, and several of which I can imagine being enjoyable as shorts. The book is way too long.
If you can put up with lots of crapenjoy science fiction, you’ll probably like Accelerando. Everyone else, skim the Accelerando Technical Companion to pick up any missing memes. Peter McCluskey has a better Accelerando review.
Down and Out in the Magic Kingdom is short and concerns the fate of a theme park ride rather than the fate of the universe. Theme park rides are run by adhocracies. The only way for an ad hoc to take over a ride is to have such an obviously better plan for it that nobody resists–but not everyone wants to play by the rules.
Much is left unexplained (e.g, how does cleaning bathrooms immediately boost one’s whuffie–mass surveillance?), but the core ideas Doctorow explores infect every page, making the book the most thought provoking treatise on Disney theme park rides ever.
What would an economy driven by open source concepts and reputation (post-capitalist but not necessarily post-market?) look like? This is a concern of both books. Neither has concrete answers, but Down and Out does a fair job of toying with the question, cat-like, in its limited domain.
Both authors are trying primitive versions of these ideas in the real world, having released Accelerando and Down and Out under Creative Commons licenses. You can download the books here and here. I commend both authors for this and for even attempting to write human stories about such abstract and interesting topics.
Democracy and Decision, a 1993 book by economist/philosopher Geoffrey Brennan and political philosopher Loren Lomasky, undermines a relatively little known (to me) side of public choice theory–the assumption that voters vote in accordance with their (instrumental) interests.
The authors make a convincing case that because an individual voter is essentially never decisive, the rational voter will vote expressively, even if the vote that gains the voter the highest expressive value would be against the voter’s instrumental interests, if the voter were decisive. The authors summarize their proposition as “Rational action ⇏ psuedorational voting.”
The following rendition of Table 2.2. Electoral choice as a quasi-prisoners’ dilemma (p. 28) illustrates a simple case where voters will vote according to their expressive values and against their instrumental values, as their probability of casting a decisive vote approaches nil.
| All others | |||
| Each | Majority for a | Majority for b | Tie (probability → 0) |
| Vote for a | 5 | 105 | 5 |
| Vote for b | 0 | 100 | 100 |
The authors make a reasonable case that voters’ instrumental and expressive values often are divergent. War seems to be a particularly strong case (p. 50):
How is it, then, that such mammoth exercises in irrationality seem to have been pursued so vigorously and with such popular enthusiasm in this most democratic of ages? The voters’ dilemma provides a possible explanation. Consider the individual voter contemplating a vote between competing political candidates in a setting where international relations are tense. One cadidate offers a policy of appeasement, recognizing the enormous cost in lives and resources that any antagonistic stance might involve. the other candidate stands for natinal integrity — “By God, we are not going to be pushed around by these bastards.” We might well presume that few voters, making a careful calculation of the costs and benefits to themselves and those they care about, would actually opt for war. Just as invididuals, in situations of interpersonal strain, will often swallow their pride, shrug their shoulders, and stroll off rather than commit themselves to an all-out fight (particularly one that might imply someone’s death), so the interest of most voters would be better served by drawing back from the belligerent course. Yet a careful reflective computation of the costs and benefits of the alternative outcomes to herself (and those others relevant to her concerns) is precisely what the voter does not entertain: Any such computation is essentially irrelevant. What is relevant, we might suppose, is the opportunity to show one’s patriotism, one’s antipathy to servility, one’s strength of national purpose.
Of course expressive preferences may be for peace instead. In either case, and for any issue, the main point is that “it will be the symbolic power of the policy rather than the costs and benefits the policy scatters on particular voters that will be most relevant.” (p. 51, emphasis in original)
A chapter is devoted to the probability that a vote is decisive–roughly speaking, the probability an election is decided by one vote, given an odd number of votes. It turns out the calculation of this probability is not straightforward, but any reasonable attempt seems to result in an infinitesimal value.
Strategic voting and widespread belief in the wasted vote argument against voting for minor party candidates would seem to indicate that voters do not vote expressively (surely the proportion of voters who could increase their expressive returns by voting for a “third party” candidate is higher than the roughly one percent who actually do so in U.S. presidential elections). However, at least four non-instrumental factors explain strategic voting: established parties have economies of scale in advertising, rationally habitual voting, voting for a candidate’s top competitor may give the highest expressive returns if a voter’s primary expresive desire is to “boo” the candidate, and being seen as voting “responsibly” is itself an expressive return.
One possibility I believe the authors do not address is that voters may irrationally believe there is a significant probability that their votes may be decisive. After all, the probability calculation is not obvious, and people presumably have terrible intuitions about very large (or small) numbers. The only two small hints of voter irrationality I noticed were on page 121–some voters may be irrationally instrumental–and the following odd quote from page 171:
One who intends through his vote to bring about the elctiction of candidate X is on all fours with someone who steps on a crack with the intention of thereby breaking his grandmother’s back. Irrespective of what they may believe they are doing, they are in fact not acting intentionally to secure favored outcomes.
The fundamental lesson of the domination of voters’ instrumental preferences by expressive preferences is that homo economicus is a poor model for voter behavior.
Another way to put this is to distinguish “p-prefernces” (those expressed when voting) from “m-preferences” (market preferences, or those expressed when the actor is decisive). The authors then disuss “r-preferences” (outcomes an actor may prefer upon reflection, but finds himself unwilling to act upon, e.g., a glutton may reflectively prefer to refuse a third serving of cake, but not actually do so) and the related concept of merit goods, items underconsumed even in ideal markets.
Voting dominated by expressive preferences could lead to the political provision of merit goods. However, demerit goods could also be provided.
The authors close with an analaysis of the constitutional implcations of expressive voting, e.g., what does it mean for federalism, the secret ballot, or representative democracy? Nothing is said in this chapter that hasn’t been said countless times without the benefit of a theory of expressive voting.
At the top of this post I said that the assumption the assumption of instrumental voting by public choice theory is relatively unknown to me. My very uneducated summary of the insight of public choice can be summed up as “concentrated interests trump diffuse interests.” The reason I considered theories of voting unimportant in this context is that voters are obviously diffuse. In my mind, the concentrated interests are not voter blocs, but organizations that manage to overcome the obstacles to collective (political) action (e.g., individual corporations, trade groups, and unions) and politicians themselves. I’m not sure what, if any, impact expressive voting has on this side of public choice theory. One impact may be that expressive voting within organizations lowers the bar for collective action.
There’s more to be said about the book, particularly on merit goods and related subjects (but it’s been a few months since I read Democracy and Decision, and my grasp on the subtleties is fading fast) and much more on the implcations of expressive preferences outside the context of electoral contests, a subject the authors explicity do not cover.
It warms my heart to see a column titled Imagine a world without copyright in the International Herald-Tribune, but I’m afraid Joost Smiers and Marieke van Schijndel imagine too much from such a world:
What is interesting about this approach is that this proposal strikes a fatal blow to a few cultural monopolists who, aided by copyright, use their stars, blockbusters and bestsellers to monopolize the market and siphon off attention from every other artistic work produced by artists. That is problematic in our society in which we have a great need for that pluriformity of artistic expression.
I have great sympathy with this hope, indeed it is one of the things that first interested me in copyright. There is some very imperfect evidence from China that without copyright mass culture will still be star-driven and repulsive.
The authors also do not describe a world completely without copyright, offering creators a one-year exclusive right to exploit new works commercially (a one-year usufruct as they say) where the work demands sizeable initial investments. An unfortunate proposal: to protectionists, a ridicuously constrained mononpoly, but one that undermines the authors’ vision. Better to use the paragraph to mention ideas for financing of artistic works that do not require monopoly privilege. Or to mention peer production, open source, or free software, which they do not.
The Adelphi Charter on Creativity, Innovation and Intellectual Property, released a few days ago, looks like a fairly reasonable set of guidelines for thinking about innovation policy. Their one pager (PDF).
I found the history of the Royal Society for the Arts (sponsor of Adelphi) far more interesting than the charter itself. An excerpt:
The original name of the Society was Society for the encouragement of Arts, Manufactures and Commerce. However, an alternative name quickly emerged - the “Premium Society”. Until the mid 19th century, the Society offered cash premiums to inventors and artists as a means of encouraging new and progressive works. This means of supporting innovation often meant hostility towards patents. The reasons for the conflict are complex.
Read the rest.
Jimmy Wales, guest blogging at Lessig’s, has started what promises to be an interesting series of posts on ten things that will be free (as in free software):
[T]his is not a dream list of things which I hope through some magic to become free, but a list of things which I believe are solvable in reality, things that will be free. Anyone whose business model for the next 100 years depends on these things remaining proprietary better watch out: free culture is coming to get you.
…For each of the ten, I will try to give some basic (and hopefully not too ambiguous) definitions for what it will mean for each of them to be “solved”, and we can all check back for the next 25 or 50 years to see how we are doing.
In a subsequent post Wales is even more explicit:
[T]he point of naming the list “will be free” rather than “should be free” or “must be free” is that I am making concrete predictions rather than listing a pie in the sky list of things I wish to see.
I’d love to see similar (but shorter term and more thoroughly specified) predictions as claims on a prediction market. With the right set of claims we can more easily talk about, and plan for, which things are more likely to be free, and when.
Thus far Wales has predicted encyclopedias and curricula will be free. I can’t think of any segments that I am fairly certain will be free, are associated with large businesses, and have not already been alluded to in the comments on his first post.
However, regarding widely deployed software (e.g., operating systems, productivity applications) I have a theory explaining why it will be free: Microsoft Windows and Office have a half life–eventually a release of each will be a failure, at which point the only viable alternaives will be free, and any non-free alternaitves will face slow death–think commercial Unixes in the face of Linux. I’m not going to stand by this theory–it probably assumes too little change, of any sort.
The Electronic Frontient Foundation is 15 and wants “to hear about your ‘click moment’–the very first step you took to stand up for your digital rights.”
I don’t remember. It musn’t have been a figurative “click moment.” Probably not a literal “click moment” either–I doubt I used a mouse.
A frequent theme of other EFF15 posts seems to be “how I become a copyfighter” or “how I became a digital freedom activist.” I’ve done embarrassingly little (the occasional letter to a government officeholder, Sklyarov protests, the odd mailing list or blog post, running non-infringing P2P nodes, a more often lapsed than not EFF membership), but that’s the tack I’ll take here.
As a free speech absolutist I’ve always found the concept of “digital rights” superfluous. Though knowledge of computers may have helped me understand “the issues,” I needed none to oppose crypto export laws, the clipper chip, CDA, DMCA, perpetual copyright extension and the like. Still, I hold “ditigal rights,” for lack of a better term, near and dear. So how I became a copyfighter of sorts: four “click themes,” one with a “click moment.” All coalesced around 1988-1992, happily matching my college years, which otherwise were a complete waste of time.
First, earliest, and most important, I’d had an ear for “experimental” music since before college. At college I scheduled and skipped classes and missed sleep around WEFT schedule. Nothing was better than great music, and from my perspective, big record companies provided none of it. There was and is more mind-blowingly escastic music made for peanuts than I could hope to experience in many lifetimes. I didn’t have the terms just yet, but it was intuitively obvious that there was no public goods provisioning problem for art, at least not for anything I appreciated, while there was a massive oversupply of abominable anti-art.
Second, somewhere between reading libertarian tracts and studying economics, I hit upon the idea that “intellectual property” may be neither. Those are likely sources anyway–I don’t remember where I first came across the idea. I kept an eye out for confirmation and somewhere, also forgotten, I found a reference to Tom Palmer’s Intellectual Property: A Non-Posnerian Law and Economics Approach. Finding and reading the article, which describes intellectual property as a state-granted monopoly privilege developed through rent seeking by publishers and non-monopoly means of producing intangible goods, at my university’s law library was my “click moment.”
Third, I saw great promise in the nascent free software movement, and I wanted to run UNIX on my computer. I awaited 386BSD with baited breath and remember when Torvalds announced Linux on Usenet. I prematurely predicted world domination a few times, but regardless, free software was and is the most concrete, compelling and hopeful sign that large scale non-monopoly production of non-rivalrous goods is possible and good, and that the net facilitates such production, and that freedom on the net and free software together render each other more useful, imporant, and defensible.
Fourth, last, and least important, I followed the cypherpunks list for some time, where the ideas of crypto anarchy and BlackNet were developed. In the ten years or so since the net has not turned inside out nor overturned governments and corporations, yet we are very early in its history. Cypherpunk outcomes may remain vaporware indefinitely, but nonetheless are evocative of the transformational potential of the net. I do not know what ends will occur, but I’ll gladly place my bets on, and defend, the means of freedom and decentralization rather than control and protectionism.
The EFF has done an immense amount of great work over the past 15 years. You should join, and I will update my membership. However, my very favorite thing about the EFF is indirect–I’ve seen co-founder and board member John Gilmore at both drug war and DMCA protests. If you care about digital rights or any rights at all and do not understand descruction of individuals, rights, and societies wreaked by the drug war, there’s no time like the present to learn–the first step needed in order to stand up for your rights.
Blog-a-thon tag: EFF15
Gordon Mohr suggested in a comment that as a name Dominant Assurance Contract is no good and perhaps “refund bonus” would be better. That may be right, though “refund bonus” seems to only describe part of the arrangement.
I conducted a brief search for alternatives, unsatisfactory apart from discovering that the term reverse bounty was recently (April) used to describe an offer by a programmer to develop a feature when a certain amount of money is raised (a bounty is offered by someone requesting a feature). At least one reverse bounty successfully raised the amount requested. I cannot tell what happens to contributed funds in the case where the amount requested is not raised. Notably for the successful reverse bounty the developer said they would ‘top up’ the money and ensure the feature got built. A subsequent reverse bounty seems to have raised nothing so far, perhaps in part because it does not appear to come with any guarantee (also the proposed feature is probably has a narrow audience and the reverse bounty is being called a “request for funding”–true, but very dull).
An assurance contract returns contributions (or cancels pledges) in case the amount requested is not raised. A dominant assurance contract returns contributions plus a failure payoff or refund bouns, making it worthwhile for interested parties to contribute even if they believe the contribution threshold will not be met. Both concepts could easily be applied to reverse bounties.
None yet, but Russ Nelson left a comment on a Slashdot article about using Fundable for open source software saying that he has plans to modify the Public Software Fund so it allows for dominant assurance contracts.
Just in case the people behind Fundable were not aware of the concept I just suggested that they also offer dominant assurance contracts.
Separately, see Kragen Sitaker’s explanation of assurance contracts as put options inspired by Anton Sherwood’s description of using call options rather than eminent domain to acquire land for a road or pipeline.
Kragen Sitaker thinks out loud about dominant assurance contracts for funding public goods, especially free software. My first post on dominant assurance contracts is here. A few thoughts regarding Kragen’s analysis follow.
On public goods:
Generally public goods tend to be underprovided
Almost by definition, but my intuition is that there are important and almost universally unacknowledged exceptions where the good is nonrival, production generates large private benefits, consumption opportunities are limited, or perhaps some combination of these, e.g., recorded music. However, I have no rigorous backing for this intuition. Todo: read existing literature on socially optimal copyright.
[Richard Stallman] would be a happier man today had he spent those years [writing free software] not working with computers at all
I don’t know whether Stallman is happy, but this sounds suspect. He has gained tremendous personal benefits through his programming that he probably couldn’t have obtained otherwise (though perhaps this does not matter, as he shouldn’t have expected to become famous and leader of a very significant movement, unless he was a megalomaniac). It would be more interesting and clearer to make a case that the modal free software contributor acts selflessly, but that would be a long argument and beside the point, which I suppose is simply that unselfish action can produce some public goods.
On dominant assurance contracts:
I suspect that the analysis extends to a more general case, in which each contributor chooses the amount of their own contribution $S, the escrow agent performs the project if the total contributions are over some basic amount, and the extra refund is a specified percentage of the contribution rather than a specified dollar amount; but Tabarrok does not mention this in his paper.
Looks like a very useful extension.
However, copyright places the risk on the artist, while dominant assurance contracts place the risk on the artist’s fans.
I think here the risk is of a worse than expected work. It ought to be possible for an artist to assume more risk by making fulfillment of the contract (and thus not having to refund contributions plus a penalty) contingent on some agreed and hopefully minimally gameable quality measure.
[Update 20050605:On second thought I'm confusing (or extending) the dominant assurance contract idea, which only stipulates that a failure penalty be paid when not enough resources are raised, not when a successfully funded project is not successfully completed.]
Someone also asked whether it was possible to model a dominant assurance contract as a normal assurance contract with a separate prediction market, like the Iowa Electronic Markets, in which people traded idea futures on the likelihood of the completion of the funding. I don’t know how to model it in those terms, although it might be possible.
I don’t know how to model an assurance contract plus prediction market hedging either, but I suspect it may not work as well as a dominant assurance contract.
First, with a dominant assurance contract only contributors receive a payoff in the case of failure. If contribution and failure payoff are unbundled, how are incentives to contribute any different than a plain assurance contract? One can hedge against failure without contributing to sucess.
Second, risk and management of risk is transferred from the entrepreneur to the contributor. Managing risk by hedging securities is hard and costly. The entrepreneur offering the contract may be far more capable of managing risk than contributors.
Prediction market prices may prove helpful to entrepreneurs and potential contributors in deciding what contracts to offer and accept, but this is orthogonal to the structure of dominant assurance contracts, which attack contribution problems rather than revelation problems.
Finally, Tabarrok suggests that the market for escrow agents should be highly competitive because there are low barriers to entry — all you have to do is write a three-line contract and hold some money, assuming that the possible contributors first hold some kind of competition to select which escrow agent they want to use. I think that’s a big assumption, and that escrow agents are likely to wield substantial market power by virtue of network effects, and consequently extract substantial profits from this business.
A well-known escrow agent will be able to attract many more contributors, and so will be able to require much less money from each, which is likely to be a large incentive to use the well-known
agent.
Tabarrok does not mention escrow agents, who may well be involved, but I see no reason to assume the market for such services should be any less competitive than any other market for financial intermediaries. He says that he expects the market for contract providers to be competitive. Presumably these will be entrepreneurs with an expertise in producing a particular public good or aggregators. We have examples of these, from contractors to the United Way or eBay. How would dominant assurance contracts alter the competitive landscape, for better or worse?
[Update 20050605:The distinction I draw between escrow agents and contract providers may not be relevant. It appears that Fundable acts as an aggregator/marketplace and an escrow agent. Also, citing eBay may not inspire confidence. I've read, but cannot find a cite for, that it has 85% market share in the US person-to-person online auction market. Whether this is something to worry about will be in the eye of the beholder, e.g., what "market" is relevant -- eBay faces indirect competition from garage sales, new goods at retail, and everything in between. Kragen will "just" have to work on zFundable.]
Kragen also has good thoughts on how dominant assurance contracts could prove useful in several fields, potential problems, and responses to several irrelevant objections. Read the whole thing and see Tabarrok’s paper and recent post without which none of the current discussants would be aware of the idea.
Bryan Caplan points to a fascinating paper on the economics of extreme religious groups which explains the relationship of public goods produced by such groups and sacrifice demanded by the same. Caplan writes:
The upshot is that economists overestimate the severity of public goods problems but underestimate the severity of rent-seeking.
I think Caplan probably has the upshot of this particular paper wrong (I haven’t read the whole paper carefully yet, more later perhaps) but I suspect he’s correct about a bias to overestimate public goods problems and underestimate rent seeking. I wonder if anyone has attempted to detect such a bias either experimentally (in an economics lab) or through painful survey of various popular and academic literatures?
I’m pleased that Ernest Miller made the connection to copyright, though he riffs off the weaker part of Caplan’s post.
Copyright is (should be) the textbook case of wildly overestimating the public goods problem while ignoring rent seeking problems (NB “how can an artist make a full time living doing only art” is not a public goods problem). Witness massive production of art where expected profit from sales of copies and licensing is nil, both outside the content industry and where restrictions on copying are not enforced. Consider who benefits from perpetual copyright — not the public.
Discussing Fundable, Alex Tabarrok explains assurance contracts and cites his improvement, dominant assurance contracts (emphasis in original, link added):
In a dominant assurance contract if the group goal is not met then everyone who offered to contribute is given their money back plus a bonus. It turns out that it then becomes a dominant strategy to contribute and the public good is always provided!
Very interesting. I’ve mentioned before in passing that many political problems can be thought of as public goods problems.
I’d really like to see some analysis of what sorts of public goods are amenable to provision via dominant assurance contracts and then implementation. The only other instances of “dominant assurance contract(s)” I can find are in Zane Spindler’s pedagogical A Tale of Twin Cities: A Parable in Urban Political Economy! and this which indicates that Tabarrok was working on a book on the subject ten years ago. I hope someone else follows up.
I’m also interested in further analysis of other proposed mechanisms for funding the production of public goods, including how their “payoff” would be effected by the addition of a failure bonus:
Fundable reminds me a little of the (failed: mobshop.com, mercata.com, etc.) group shopping phenomena, but far more general.
Notes on Mancur Olson’s Logic of Collective Action, an apparent classic first published in 1965, which I read in September:
The basic argument is set forth on page 2 (emphasis in orginal):
Unless the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in their common interest, rational self-interested individuals will not act to achieve their common or group interests.
Olson writes on page 64 that self interest is not a requirement for this outcome. Even rational altruistic individuals will not act to further group interests if they realize that their efforts, as one of many, will have no perceptible effect on the outcome.
Olson says several times that groups by definition act in the interests of members, though he admits to potential in-fighting and capture by leaders in footnotes. However, if coercion must be involved (the success of other special devices such as exclusive contributor services is downplayed), what is to prevent a rather permanent state of affairs in which members are forced to act against their own interests? I use the word state in the preceding sentence advisedly.
A very long and curious note on page 48 (note 68 of chapter I “A Theory of Groups and Organizations”) begins and ends with (middle elided):
There is one logically conceivable, but surely empirically trivial, case in which a large group could be provided with a very small amount of a collective good without coercion or outside incentives.
[...]
total costs of the collective good wanted by large groups are large enough to exceed the value of the small fraction of tht total benefit that an individual in a large group would get, so that he will not provide the good. There may be exceptions to this, as to any other empirical statement, and thus there may be instances in which large groups could provide themselves with (at most minute amounts of) collective goods through the voluntary and rational action of one of their members.
This quote is typical of Olson’s insistence that public goods just don’t get produced without coercion or individually excludable inducements, which he notes shift the individual’s indifference curve to the left or right respectively.
In 2004 the above quote cries out for a response of “professor, what about open source?” However, I suspect that Olson thoroughly underestimates in general the extent to which private efforts motivated by private returns produce positive externalities, thus reducing the need for coercion. As I previously mentioned in an aside, the extent of private and public good co-production(?) is a crucial if unstated aspect of nearly any policy debate.
When applied more narrowly to private associations Olson’s argument is fairly compelling, though not novel, as perhaps it seemed in 1965.
Olson seems somewhat congruent with public choice economics. While I like to summarize a key insight of the latter as “concentrated interests trump diffuse interests”, Olson emphasizes the great difficulties groups face when pursuing a common goal, e.g., attempting to trump diffuse interests via “special interest” lobbying. Perhaps it isn’t such a bad thing that groups have a difficult time acting to achieve group interests, that is when group interests may be furthered by stealing rather than production.
Alex Tabarrok writes about An Auction Market for Journal Articles (PDF). Publishers bid for the right to publish a paper. The amount of the winning bid is divided by the authors and publishers of papers cited by the paper just auctioned. Unless I’m missing something all participating journals taken together lose money unless the share of cited authors is zero and transaction costs are nil. Still, the system could increase incentives to publish quality papers, where “subsequent authors will want to cite this” is a proxy for quality.
I’m reminded a tiny bit of BlogShares (”Blogs are valued by their incoming links and add value to other blogs by linking to them”), but especially of Ian Clarke’s FairShare, which is a proposal for speculative donations:
Anybody can “invest” in an artist, and if that artist goes on to be a success, then the person is reward in proportion to their investment and how early they made it. But where does this return on investment come from? The answer is that it comes from subsequent investors. For example, lets say that you invest $10. $4.50 might go straight to the band, $1 might go to the operator of the system, and the remaining $4.50 would be distributed among previous investors in the band, those who invested more early would get a bigger proportion than those who invested less, later-on. Of course, most people will not make a profit, but they are rewarded by knowing that they contributed towards an artist that they liked, and helped reward others who believed in that artist, and who may have brought the artist to their attention.
Under FairShare participating creators taken together and individually would make money, as payments are from without the system, driven by the generosity and greed of fans and speculators.
A system in the spirit of one or both of these proposals could perhaps help fund a voluntary collective licensing scheme of the sort contemplated for digital music, but conceivably applicable to other types of work.
If the journal market idea really could foster a self-sustaining business model it could be a boon to the open access movement. Restricting access is rather pointless when your main business concern is to get your articles cited.
I’ve rambled about open access models elsewhere.
Richard Epstein has an absolutely terrible column in the October 21 Financial Times: Why open source is unsustainable. Epstein begins with the oh-so-original observation that
Intellectual property often creates strange bedfellows on the left and the right sides of the political spectrum.
Left and right may not be the proper characterizations for those referred to, and the alliance isn’t at all strange — it reoccurs often when personal freedom, civil liberty, what have you is threatened. The war on drugs and war in general are two prime threats that motivate reasonable people to become “strange bedfellows.” Open source is perhaps slightly odd in that it is a uniting opportunity, rather than a threat.
On the left, many socialists oppose private property in all its forms.
Many? Possibly some Maoists or similar retreads, but then I’m not very familiar with hard core communist ideology, and those types aren’t very common these days. As far as I know most syndicalists or anti-market anarchists admit to some personal property. Run of the mill socialists certainly do not oppose private property in all its forms.
On the right, some libertarians, such as Tom Bell of Chapman Law School,
Right, schmight. Anyway, links to Tom W. Bell and his copyright writings. Also see Tom G. Palmer and Stephen Kinsella.
are deeply suspicious of the use of intellectual property to block the right of other individuals to think and speak as they choose. While they regard private property as acceptable for physical resources that cannot be used by everyone at once, they draw the line at intellectual property, which can be copied at close to zero cost.
Amazing common sense. Intellectual property (I prefer one of “intangible goods” or “intellectual protectionism”) is a taking of the rights of owners of tangible property, who are denied any use of their real property that infringes on the rights of IP owners.
All this anti-IP rhetoric begs one question: how do we produce IP in the first place?
A question sidestepped by Epstein for the remainder of the article. Aside: perhaps any issue that demands (or rather, for which some demand) government attention in some form — regulation, subsidy, prohibition, etc. — can be thought of as a public goods problem. However, just because something is a public good doesn’t mean that it is not also a private good — production of open source software being just one example. Lynne Kiesling has some musings along these lines, starting with electricity network reliability.
The middle part of Epstein’s column is a morass of classic fear, uncertainty, and doubt regarding open source software, all terribly uninformed. A few counters:
This quote from Epstein is good for a chuckle:
But how do the insiders, such as Linus Torvalds, cash out of the business that they built? And in the interim, how do they attract capital and personnel needed to expand the business? Traditional companies have evolved their capital structures for good reason.
Torvalds didn’t build a business, not that we have to worry about him eating. Rather than speculating in the abstract, Epstein should study how successful open source companies have actually expanded their businesses. And how and why traditional companies have seen it in their best interest to pay developers to work on open source.
So what does Epstein really want? That comes at the very end of his column:
But suppose this analysis is wrong. One clear policy implication remains: this novel form of business association should succeed or fail on its own merits. The do-or-die question is whether open source offers a low cost solution to particular problems. Ordinary companies will make just those calculations, but government agencies may be swayed to take a different tack, as has been suggested by a number of EU studies. That temptation should be avoided. Governments are bad at forcing technology by playing favourites. If open source is less effective than proprietary software, that gap should not be ignored by positing some positive network externalities that come from giving it a larger base. Proprietary systems also show positive network effects from increased users, as software designers are always attracted by a larger installed base. It’s a tough world out there, in which no one should be exempted from the general competitive pressures of the marketplace. The fiduciary duties of government to all citizens demand no less.
I love Epstein’s subtle abuse of the word implication.
I strongly agree that government is terrible at picking technology winners. That’s why I’ll probably vote against California’s stem cell research bond, despite being strongly in favor of any and all uses of fetal stem cells.
However, to the extent government is a technology consumer, it ought to be an intelligent consumer. Julian Sanchez made an excellent argument for open source in government — especially in government — two years ago in a column titled Open Source and Its Enemies:
With proprietary software, government’s potentially standard-setting procurement choices give it the role of market kingmaker.
A certain recipe for inefficient rent seeking behavior.
an organization for a good future
In 1998 I registered wifo.org (wayback June 2000 copy) with the intention of using the platform to mock the World Intellectual Property Organization and promote the study of production of nonrivalrous goods, with a decided bias against government-granted monopolies in such goods. My battle against life in the late 90s was mostly a losing one, so I never carried through.
Anyway, I now recommend you sign the Geneva Declaration on the Future of the World Intellectual Property Organization AKA “Proposal for the Establishment of a Development Agenda for WIPO” offered by Argentina and Brazil to the WIPO General Assembly last week. I’m not thrilled with all of the language, but upon first read it looks quite excellent given my low estimation of UN documents. Excerpt:
At the same time, there are astoundingly promising innovations in information, medical and other essential technologies, as well as in social movements and business models. We are witnessing highly successful campaigns for access to drugs for AIDS, scientific journals, genomic information and other databases, and hundreds of innovative collaborative efforts to create public goods, including the Internet, the World Wide Web, Wikipedia, the Creative Commons, GNU Linux and other free and open software projects, as well as distance education tools and medical research tools. Technologies such as Google now provide tens of millions with powerful tools to find information. Alternative compensation systems have been proposed to expand access and interest in cultural works, while providing both artists and consumers with efficient and fair systems for compensation. There is renewed interest in compensatory liability rules, innovation prizes, or competitive intermediators, as models for economic incentives for science and technology that can facilitate sequential follow-on innovation and avoid monopolist abuses. In 2001, the World Trade Organization (WTO) declared that member countries should “promote access to medicines for all.”
Humanity stands at a crossroads - a fork in our moral code and a test of our ability to adapt and grow. Will we evaluate, learn and profit from the best of these new ideas and opportunities, or will we respond to the most unimaginative pleas to suppress all of this in favor of intellectually weak, ideologically rigid, and sometimes brutally unfair and inefficient policies? Much will depend upon the future direction of the World Intellectual Property Organization (WIPO), a global body setting standards that regulate the production, distribution and use of knowledge.
As you could guess from my description of a “World Intellectual Freedom Organization” I’m very interested in “models for economic incentives for science and technology that can facilitate sequential follow-on innovation and avoid monopolist abuses.” I admit that I’d never heard of compensatory liability rules or competitive intermediators. Google knows of only a few documents with the former term, excepting copies of the aforementioned declaration.
Using Liability Rules to Stimulate Local Innovation in Developing Countries: A Law and Economics Primer (PDF) appears to be the paper describing compensatory liability rules. At a glance it appears CLR is akin to a compulsory license for subpatentable innovations (which under the current regime are all too often patented). Sounds like a reasonable potential reform.
Google also knows next to nothing about competitive intermediators, which appear to be an invention of the authors of A New Trade Framework for Global Healthcare R&D. The proposal seems to amount to R&D funded by a payroll tax. Very boring.
The X-Prize has raised the profile of innovation prizes immensely, but they are an old idea that has deserved resurrection for a long time. I recommend starting with Robin Hanson’s Patterns of Patronage: Why Grants Won Over Prizes in Science (PDF). I’ve donated a small amount ($122.45 — can you guess why?) to the Methuselah Mouse Prize and will donate more to this and other science prizes in the future — I’m very keen on the concept.
Compensatory liability rules, innovation prizes, or competitive intermediators are only three of many interesting ideas in this vein. I’ll write about others in the fullness of time.
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