Post Public Goods

Public Goods Group Shopping

Friday, May 13th, 2005

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.

Posted in Economics, Open Source, Public Goods | 18 Comments »

Logic of Collective Action

Saturday, November 20th, 2004

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.

Posted in Books, Economics, Open Source, Politics, Public Goods | 7 Comments »

Speculate on Creators

Wednesday, November 17th, 2004

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.

Posted in Blogs, Creative Commons, Economics, Intellectual Protectionism, Open Access, Public Domain, Public Goods | 3 Comments »

Richard Epstein’s open source leavings

Sunday, October 24th, 2004

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 Stephan 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:

  • Open source does produce excellent non-server software. If you aren’t reading this in Mozilla Firefox chances are you’re missing out big time. Also see OpenOffice, the GIMP, the GNOME Desktop, Inkscape, Scribus, Eclipse and many more.
  • Individual hackers have been and always will be incredibly important and productive in ways Epstein and DeLong probably just don’t get, but open source is now integral to many of the largest for-profit software concerns (e.g., IBM and Oracle) and software consumers (e.g., Wall Street).
  • Even if they did hold water, a serious anti-open source commentator would not use anti-GPL arguments as the linchpin of their anti-open source argument. Three open source applications stand above all others in terms of market share: BIND, Sendmail, and Apache . None of these are GPL’d.

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.

Posted in Economics, Intellectual Protectionism, Open Source, Politics, Public Domain, Public Goods | 7 Comments »

World Intellectual Freedom Organization

Thursday, October 14th, 2004

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.

Posted in Economics, Health, Intellectual Protectionism, Politics, Prediction Markets, Public Domain, Public Goods | 6 Comments »

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