I don't think this actually solves the freerider problem. It solves the coordination problem.
In your toy example Bob was able to specify that he wouldn't build anything unless everyone signed the contract - if this is possible you don't really need the dominant assurance part, as it's still worth it for the freerider to sign up, so long as they assume there's a decent chance others will as well (and if they don't, that's going to discourage non-freeriders as well).
In real life though, this is impossible. Instead the contract is along the lines of "I will do this so long as at least X people sign up, or we get Y dollars of funding".
In that case it's only worth it for the freerider to sign up if either.
Or
There's still no incentive for the freerider to sign up if the limit would otherwise be reached.
Instead what this solves is the coordination problem. Prosocial people want to fund various markets, but it's a waste of time doing this if nobody else joins in. The dominant assurance contract makes this worth it either way, so it's easier for markets to get off the ground to the point where it looks like they'll probably make it.
After reading the comments and re-reading the article, I think it's a little confused. The central conclusion, that this crowdfunding model is more effective and would help us fund more things we want, is correct (as I also argued in my own post). But I think some of the reasoning and examples are wrong. I'll try to explain.
Free riding is the wrong framing in most cases
In your road example, you changed the condition from a funding goal ($90), to a backer-amount goal, in order to force everyone to pay if they want to have a road. I think this is both undesirable and irrelevant in most cases:
Dominant assurance contracts seems gambling-like/scam-like the same way that crypto-currency does. The top comment on the Berkeley House Dinner Project is "this is a dollar-auction (AKA scam)", and the second top comment is "Surely this is illegal?"
I don't see anywhere in your post where you address the question of whether this is actually legal, though? An offer that if someone gives you money then (depending on factors outside of that person's control) you may give them double their money back sounds like the kind of thing societies tend to regulate heavily. For example, in the US, I think it is possible that this would pass the Howey test to be considered a security?
This is a interesting idea, but your example oversells it substantially. Future iterations need to not do this, or you'll sound like a huckster and not get support.
If all ten people on the street have to contribute, everyone knows for sure that they won't get what they want if they don't contribute. No payback is necessary; free riding is impossible. That's the easy case. When you just need some amount of money rather than every single individual to contribute, it's quite possible to free ride.
...But why can't I just let other people pay and free-ride?
Y
I'm fully funded! In fact, as of writing. I have nearly 3x more funding than I asked for! The money really started rolling in after Alex Tabarrok plugged my project on marginal revolution, which I did not expect.
I'm not sure why people continued to give me money after the project was fully funded but I'm very thankful. (Of course, the more money I get the longer I can work on the project increasing the chance of success). The fundraising only officially ends 15 September, so I'm not going to give a full report until then.
I was hoping to do so...
Wonderful that you’re working on this! I’m with AI Safety Impact Markets, and I suspect that we will need a system like this eventually. We haven’t received a lot of feedback to the effect yet, so I haven’t prioritized it, but there are at least two applications for it (for investors and (one day, speculatively) for impact buyers/retrofunders). We’re currently addressing it with a bonding curve auction of sorts, which incentivizes donors to come in early, so that they’re also not so incentivized to wait each other out. The incentive structures are differen...
Love the idea (contributed 10 dollars), but I don't love the title - it feels a little clickbaity (I expected an article about asteroid deflection, not about DACs).
I'm somewhat flabbergasted that no one has mentioned radicalxChange or quadratic funding. They're a solution that doesn't force the producer to take on all the risks of failure, at the cost of needing a centralized pot of money.
I think DACs face two challenges.
For these reasons, it's hard for me to get excited about DACs.
There is pr...
This all works if Frank is a fully rational agent that only pursues a Nash equilibrium. But most people aren't that rational (or pursue different values). Would I want asteroid deflection to depend on a DAC? Hell no, because that implies there's a need for unanimous paying in for the sake of deflecting the asteroid, and I know someone's going to not pay anyway for weird obscure reasons like that they worship the asteroid as a god or something.
I have a bad feeling about this. I think that correctly pricing these contracts will be very hard to do. If a lot of contracts fail and people lose their collateral, then people are going to stop putting up collateral. Also, some people won't care about any particular public good and might make a pledge anyway in the hope of getting a refund bonus and will be upset when they "lose" their money or might even try to sabotage an open contract.
I'm very interested in assurance contract websites (I wrote two of the first LW posts about them, 1, 2) and refund bonuses - I would go ahead and say that I'm at the top of your target audience in this sense - but I didn't read this post yet because you haven't made it clear in the title or the first paragraph that it's about those things. So I suggest making it clearer and then maybe more people will see it.
Anyway, now that I know it's about these things, you got a strong upvote. Also, just yesterday I created a manifold question on whether, by 2026, a cr...
I like the idea of getting more people to contribute to such contracts. Not thrilled about the execution. I think there is a massive product problem with the idea -- people don't understand it, think it is a scam, etc. If your efforts were more directed at the problem of getting people to understand and be excited about crowdfunding contracts like this, I would be a lot more excited.
Either I am missing a point somewhere, or this probably doesn't work as well outside of textbook examples.
In the example, Frank was "blackmailed" into paying, because the builder knew that there were exactly 10 villagers, and knew that Frank needs the street paved. In real life, you often do not have this kind of knowledge. If instead the builder was unsure whether 9 or 10 villagers actually need the street paved, I assume he would have set up the rules so that it is enough for 9 villagers to pay, which means that Frank could have free-rided by claiming fa...
It's my impression that currently many "successful" Kickstarter projects already break their promises (most commonly by delivering very late, sometimes in more dramatic fashions) and rarely suffer any consequences for this.
I have some concerns that if the penalty for missing your funding goal (i.e. losing your collateral) is worse than the penalty for funding but then failing to deliver (i.e. probably just a reputation hit), that's a bad incentive for creators. Some creators might try to meet their funding goal artificially (e.g. by secretly contribu...
I think the biggest risk of DACs is that it incentivises people to fund contracts they don't actually want fulfilled to milk the proposer for cash.
My expectation is that if this becomes mature you'll get traders which try to predict which contracts won't be fully funded, and then push them up to say 50% (after which pushing them further risks them actually getting fully funded).
This not only discourages proposers from putting up contracts (to easy to lose money), but also makes it harder for users to easily see which contracts are worth funding and which a...
I think this is important and I'm happy someone is doing this, so I Pledged $25 :)
That said, I think for it to be successful the design needs to be improved a lot (though perhaps this could be provisioned later with another campaign), and the legal side has to be sorted out, and also it needs a better domain name. I'd be glad to help where I can, so I joined the discord.
It seems like the problem this actually solves is the transaction cost of evaluating a project. This doesn't seem like a problem right now. Maybe people would use kickstarter very differently if DACs were commonplace, but as it stands now people chip in very small amounts based mostly on vibes.
Given the uncertainties on choosing pricing, I'm not sure there's any clear lesson we could draw from an absolute failure rate even in a world where dominant assurance contracts were commonplace. I like the idea of using prediction markets to choose the price, in a world where prediction markets are more mature as well.
Is there a way to do this without needing to secure collateral for the refund, using some stable investment vehicle like a CD? "The earlier you pledge, the bigger refund you get if the contract isn't fully funded" might help avoid the "waiting until the last moment" issue, but maybe there's some perverse incentive or other blocker.
I'm also very curious about how this method could solve issues with funding of scientific research. The lack of market pricing for research is a major impediment to allocating public funds effectively. But what prediction market can accurately estimate the price of something that might not pay off for 100 years?
I don't think the assumption of equal transaction costs holds. If I want to fill in some potholes on my street, I can go door to door and ask for donations - which costs me time but has minimal and well understood costs to the other contributors. If I have to add "explain this new thing" and "keep track of escrow funds" and "cycling back and telling everyone how the project funding is going, and making them re-decide if/how much to contribute" that is a whole bunch of extra costs.
Also, of the public good is not quantum (eg, I could fix anywhere from 1-10 o...
since private goods are non-rival it is efficient to exclude consumers who aren't willing to pay
Should this be, "since private goods are rival it is efficient..."?
Have you looked at Cowan's The Theory of Market Failure? If not you might find it of some interest.
Personally I would challenge the claim the claim of under provision due to a free-rider problem. The above collection of essays show a number of example of largely private provision of public goods where there are very clear potential for free-riding.
While the cases described in the book are not such that they could be said to be the last word on the question of public goods and under provision they do point to need to deal with the question in a more detaile...
I have had an academic interest in using assurance contracts in the social domain for a few years now. Like the author, I want them to be a reality but making that happen isn't my forté. My profession is research, not implementation.
I've written a few overviews of the idea for grants before. Here's one: https://cashman.science/wp-content/uploads/2023/09/Assurance_description_v11.pdf
The basic idea is this:
When we import this mechanism into the social domain, an assurance contract is an agreement something like an open letter—with the exception that th...
But guess what: information is a public good! That means that it's currently underfunded.
There seems to be some unstated assumptions here, since it superficially appears like you've made a logical leap.
Underfunded according to who? And for what types of information?
What are the transaction costs if you need to do 3 transactions?
1. Get the refund bonuses from the producer
2. Get the pledges from funders
3. Return the pledges + bonus if it doesn't work out
Also, will PayPal allow this type of money sending?
Congrats on getting funded way above your threshold!
I like the idea of DAC and would like to see them available and used more widely but I'm not confident that this project is the way to move that forward. Mention is made of Kickstarter: is there any knowledge of Kickstarter or GoFundMe being approached and asked to implement this functionality? It's likely to be a more effective use of time than to implement this on a new unknown and untrusted platform. Ideally, Kickstarter and/or GoFundMe would add DACs as an option to the campaign creator and ideally donators would be able to opt out (some will dislike t...
I applaud your intent, commitment and willingness to put in the effort of implementing pushing this, and I think it has a niche ("better kickstarter" isn't bad). However, I think the main problems in reality will be dealing with delivery failure/scams, transaction costs, market sizes (a lot of public goods aren't that public, minority concerns often don't get serviced by firms because of simple non-profitability), and threshold behaviour (when the value estimate for each person is washed out in the uncertainty noise and the refund is negligible...
I would have contributed... if I hadn't been required to use Paypal. I closed my account a while back.
Could we extend dominance assurance contracts to include retrodiction markets? See here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4323607
Surely, there is a clever mechanism that can fix this issue? So I went to the Wikipedia page of the Free-rider Problem and scrolled to the bottom, and lo and behold it was just sitting there: Dominant Assurance Contracts.
I feel like every assurance-contract proponent went through a moment like this. It's like "Don't Look Up" except wrt a civilization-scale solution. I'm tempted to think some people 'just don't get it' because they're missing gears-level models re coordination problems in the first place, but that would be hasty.
Update 2023-09-04: Partial Update: I'm fully funded!
Update 2023-09-21: Full Update. Funding is over.
Update 2023-11-28: Final Update. Platform Launched!
Imagine a world with no ads or paywalls. A world where open-source software gets the same level of funding as proprietary software. A world where people can freely reuse ideas and music without paying royalties. A world where people get paid for writing book reviews. A world where Game-of-Thrones-quality shows are freely available on YouTube. A world where AI safety research gets the same-level of funding as AI capabilities research. Is this a fantasy world? No, this is the world where people use Dominant Assurance Contracts
If you are already convinced you can make this idea a reality by donating to create a Platform for Dominant Assurance Contracts. If you are not convinced read on.
A few months ago I stumbled across this video. (I highly recommend you watch the video, but if you don't have time, I've summarized the video below).
A good is rival if one person's use of a good diminishes another person's ability to benefit from it. Jeans are rival. If I'm wearing a pair of jeans, you can't wear it at the same time. Asteroid deflection is non-rival. If I deflect an asteroid to protect myself, you are saved with no additional cost.
A good is excludable if people who don't pay can be easily prevented from using a good. An example of a good that is excludable is a pair of jeans. You can exclude people by locking the jeans in your closet. An example of a good that is non-excludable is asteroid deflection. You cannot prevent the people who did not pay for the asteroid deflection program from benefiting from the asteroid being deflected.
A good which is both rival and excludable is called a private good. A good which is non-rival and non-excludable is called a public good.
(Additionally, goods which are excludable and non-rival are called club goods, and goods which are non-excludable but rival are called common resources. We won't be focusing on these types of goods, but I've mentioned them for completeness)
| Excludable | Non-Excludable | |
|---|---|---|
| Rival | Private Good | Common Resources |
| Non-Rival | Club Good | Public Good |
Markets are good at providing private goods because
Public goods challenge markets because
This video stuck with me. The fact the public goods are inefficiently provided by the market seems like the main issue with our civilization. Heck, AI Safety is a public good.
The other thing that stuck is that this seems so solvable. Surely, there is a clever mechanism that can fix this issue? So I went to the Wikipedia page of the Free-rider Problem and scrolled to the bottom, and lo and behold it was just sitting there: Dominant Assurance Contracts invented in 1998 by Alex Tabarrok (yes, the same person who presented the video you just watched). There is only one problem: no one is using them.
(I recommend you watch the first 30 minutes of this video. It's really good, but if you don't have time I wrote a short explanation below that you can read instead).
Suppose there are 10 villagers on an unpaved street. Bob the Builder will pave the street for $90. Each villager is willing to contribute up to $15 to have the street paved. Additionally, there is there is a $1 transaction cost to contributing (e.g. from time spent signing forms, from credit card fees, from opportunity cost of not earning interest on that money, etc.).
If the Bob the Builder gets everyone to contribute, each villager will only have to pay $90 / 10 = $9 and profit $15 - $9 - $1 = $5. However, one of the villagers, Free-riding Frank, is hesitant to contribute. Consider Frank's decision table:
| (Frank's Profit, Others' Profit) | Others Don't Contribute | Others Contribute |
|---|---|---|
| Frank Doesn't Contribute | (0, 0) | (15, 4) |
| Frank Contributes | (-1, 0) | (5, 5) |
Looking at the table and holding the others strategy fixed, Free-riding Frank realizes that the dominant strategy in this game is to not contribute (0 vs -1 and 15 vs 5). Of course, everyone else in the village realizes this too and Bob is unable to raise the funds to pave the road.
Suppose Bob changes the game to a Dominant Assurance Contract. Dominant Assurance Contracts have two conditions:
Frank's decision table now looks something like this:
| (Frank's Profit, Others' Profit) | Others Don't Contribute | Others Contribute |
|---|---|---|
| Frank Doesn't Contribute | (0, 0) | (0, 1) |
| Frank Contributes | (1, 0) | (5, 5) |
Looking at the table and holding the others strategy fixed, Free-riding Frank now sees that the dominant strategy in this game is to contribute (0 vs 1 and 0 vs 5). Of course, everyone else in the village realizes this too and the road gets paved!
The problem is that the producers of public goods don't know about them.
Example: Element is building Matrix, an open-standards chat app (i.e. a public good). Their business model is to give away the code/standards for free and sell consulting services. Unfortunately, their competitors have undercut them by selling consulting services without contributing back to the code/standards. On HackerNews you can see their CEO complain about it as "The Tragedy of the Commons". Except he is not experiencing the tragedy of the commons. He is experiencing the free-rider problem.
If he doesn't even know what problem he has, he is not going to be able to: google "the free rider problem"; open the Wikipedia page on "the free-rider problem"; scroll to the bottom to find the section titled "Solutions"; and then read about dominant assurance contracts.
People who are trying to produce public goods don't seem to know that that's what they are doing, and that dominant assurance contracts are a way to get funding.
My main goal is to give the idea enough airtime so that when people want to produce public goods, the first tool they reach for is a dominant assurance contract.
I only know of four attempts done in the wild (tell me if you know about more).
1/4 doesn't seem so good. Dominant assurance contracts work in theory so what is going on?
The theoretical model of Dominant Assurance Contracts assumes away some things that you have to deal with in the real word
I believe the pricing problem can be solved by prediction markets. Book Review, Dark Mode and Berkeley House Dinner all had prediction markets on whether they'd reach their target. The markets were at 90%, 10%, 45%. These probabilities seem consistent with how much money each of the projects raised.
Before we launch a project we could run a multiple-choice prediction market on manifold: "The Project will raise $X", "The Project will not raise $X", "The Project will not launch or will launch with a price different from $X". Only if "The Project will raise $X" is sufficiently high, will we launch the project.
This problem is not unique to dominant assurance contracts. So it can be solved in the same way everyone else does it.
A cool idea is to partner with someone with expertise in marketing. The advertiser can put up the collateral for the refund bonus. If the project succeeds the producer can give them a cut of the funds raised. In this way, the advertiser is incentivized to make the project to succeed.
I think having a progress bar showing how many people have pledged so far is incredibly important to reach the target.
In some sense, with a progress bar, the refund bonus rewards people for providing information on whether the project is likely to reach it's funding goal.
I suspect the Book Review project would have worked if there was a progress bar.
Personally I think framing it as "You get a Refund Bonus as gratitude for supporting our project which we are very sorry we are unable to deliver" rather than "If you pledge you could win $5!!!!! Buy now!!!!" can make it seem less like a scam.
Having a progress bar also makes it seem less like a scam since it makes it easier for people to predict if the project is going to succeed or fail.
If you price your project correctly (with the help of prediction markets), market it successfully, phrase the refund bonus in a way that it does not seem like a scam and have a progress bar with a list of people who've already pledged, then it's very likely that it will reach it's target because:
You're collectively paying for $629 dollars for 1 month of my time to make this idea a reality. (I don't live in the Bay Area so my cost of living is low). I don't really need the money. I'm doing this as a experiment to test that dominant assurance contracts work. I'll likely ask for additional funding in the future to implement more features after the first month, and for specific expenses as they come up.
The plan is to create a website where public-good producers can create a page that
The website is essentially already done (my prototype just has my project hard-coded). I just need to flesh it out so that other people can upload their projects.
The main thing I'm going to doing is looking for people who want to create public goods and getting feedback from them on the platform (if that's you please join the Refund Bonus Discord or contact me in some other way)
Additionally I want to try some cool things which might not work out like
You haven't been paying attention. Unless I've priced this contract wrong, if you don't pay it doesn't happen. If you don't pay, I don't meet the goal, everyone gets refunded, I go back to my boring day job, and we continue to live in a world where public goods are under-provisioned.
It seems unlikely. The Dominant Assurance Contract paper came out in 1998. And 25 years later, I seem to be the first person to commit to getting it off the ground. You will probably have to wait a while before someone else comes.
If you want to live in a world with no ads or paywalls; a world where open-source software gets the same level of funding as proprietary software; a world where people can freely reuse ideas and music without paying royalties; a world where people get payed for writing book reviews; a world where Game-of-Thrones-quality shows are freely available on Youtube; a world where AI safety research gets the same-level of funding as AI capabilities research, then please pledge some money towards this.
Also please join the Refund Bonus Discord or contact me in some other way if your interested in:
Yes, but 60% of Kickstarters fail. That is very bad odds. Research done in a lab shows that dominant assurance contracts reduce failure rate from 60% to 40%. I think this area is very neglected compared to the upside.
If we go back to our earlier example, without a refund bonus, due to transaction costs, both "Don't Contribute" and "Contribute" are both equilibriums (0 vs -1 and 0 vs 5). The refund bonus removes "Don't Contribute" from the equilibrium.
| (Frank's Profit, Others' Profit) | Others Don't Contribute | Others Contribute |
|---|---|---|
| Frank Doesn't Contribute | (0, 0) | (0, -1) |
| Frank Contributes | (-1, 0) | (5, 5) |
I don't think enough people are working on this problem. Alex Tabarrok publish his paper on dominant assurance contracts in 1998. Kickstarter was founded in 2009, 11 years later. To this day their are no platforms for dominant assurance contracts to fund public goods.
Most things funded on Kickstarter aren't even public goods! Their stated mission is to "help bring creative projects to life". They are even trying to solve the free-rider problem! They just happen to be using a similar mechanism.
I agree dominant assurance contracts are a small improvement, but small improvements add up and almost nobody is working on this!
They are. Here are some successful open-source projects funded by Kickstarter:
Here is an unsuccessful project
Akira got 38% of their target funding. I'd be willing to bet that if they use dominant assurance contracts they would have succeeded.
Apparently 79% of projects that raised more than 20% of their goal were successfully funded. The refund bonus provides the necessary kick (hehe) that gets twice as many projects over the line.
Again, I think the main problem is that people don't know that assurance contracts (dominant or otherwise) can be used to fund public goods.
Yes! I'm not trying to make a bazillion dollars. I just want more public goods! If Kickstarter copies this idea that would be great! Less work for me!
... AI Capabilities just scale with compute, where as we don't know how to scale AI Safety. The problem is not funding, and even if it there was a dominant assurance contract for "$1 000 000 000 to solve the alignment problem" there is no guarantee that whoever gets the money will solve the alignment problem.
Yes, there is a information problem when funding research things like AI Safety. We don't have the information on whether the researcher's research will be any good. But guess what: information is a public good! That means that it's currently underfunded. Dominant assurance contracts can bridge that funding gap.
How do we fund information? Of the top of my head a bunch of things come to mind
Of course, there are other ways to fund public goods, but they all have their own problems.
Probably the main method to privately produce public goods is by running ads on goods you give away for free. The main issue with this is that ads pay a fraction of a cent per view. That means that you can only fund low-quality/cheap goods. To see this, compare videos on YouTube with series on HBO.
With taxes you face a symmetric problem to the free-rider problem: the forced-rider problem. Think of someone who doesn't use a car, but still pays taxes to maintain the roads.
Funding public good through taxes also suffer from lack of market-pricing mechanism. Government spending doesn't have to pass the market test that a dominant assurance contract has to pass, creating wasteful spending.
Impact certificates suffer from the free-rider problem. There isn't any incentive (other than altruism) to buy an impact certificate. One can just free-ride on the results of the impact project, and let the initial investor go bankrupt.
I think impact certificates are trying to solve the problem of information asymmetry rather than funding. It's possible that they could be combined with dominant assurance contracts in some way, but I'm not sure how.
A Club Good is a good that is non-rival but excludable. An example would be a subscription to HBO or Microsoft Office. It costs practically nothing on the margin to give an additional person access to HBO or Microsoft Office (all the costs were upfront in production) so these goods are non-rival. However, since HBO and Microsoft charge for these goods they are excludable.
Of course, there is piracy. So the first problem is that it's actually difficult to turn a public good into a club good, and so the free-rider problem persists.
Secondly, it's inefficient to exclude people. If you would pay $5 to watch Game of Thrones but the HBO subscription is $15, then $5 of surplus is being lost (it costs HBO $0 to let you watch Game of Thrones).
This is a type of club good.
From personal experience, I think this works okay for art where the patrons have a parasocial relationship with the artist. This seems to work less well for impersonal stuff like software.
Additionally, it's easy for Buccaneer Bob to sign up to your Patreon and then upload your products to a piracy website. Free-riding Frank won't bother to sign up to your Patreon, he'll just download your products off a piracy website.
If you price a dominant assurance contract correctly, Free-rider Frank is forced to pay.
The idea with micropayments is something like "cost per marginal unit is a fraction of a cent so we should make it possible for people to pay fractions of cents." I think this doesn't work because the cost of fraud is higher than a fraction of a cent. Also, the cost of me thinking "Is this worth 0.01c?" is higher than a fraction of a cent. It's just better to treat such things as non-rival.
The main issue with an assurance contract without a refund bonus is that "not contributing" is an equilibrium, especially if their are substantial transaction costs. I already explained this above.
Public goods are under-provisioned by the market due to the free-rider problem. Dominant assurance contracts solve the free-rider problem. Nobody is using dominant assurance contracts. To solve this problem, and simultaneously test if dominant assurance contracts work, I created a dominant assurance contract to fund a platform for creating dominant assurance contracts.