Main | March 2007 »

February 23, 2007

Social Escrow

How should we pay for projects or infrastructure, such as light houses or public radio, whose costs can't be charged to individual users? (Free-market enthusiasts may favor coin-operated light-houses, but even if you hire someone to drop in a coin when your ship is scheduled to arrive, you may inadvertently protect some business competitor passing by at the same time.) Assume that the general public (by which I mean the major campaign contributors that effectively control the government; more on this in a later post) is unwilling to fully fund the project through taxes.

For example, suppose there are ten thousand people who really want the local public radio station to buy a new $500,000 transmitter. Each is willing, in principle, to pay the $50 apiece it would cost. But no one is willing to donate unless sure that enough others will also donate for the transmitter to actually get built. What to do?

One innovative solution has been pioneered by a web site called Pledge Bank. People promise to do something, contingent on X other people making the same pledge. The threshold number for most of their pledges seems rather arbitrary. For example, will 6 letters to George Bush asking him to "save the planet" or 22 people using Open Office have much greater impact than 3 letters or 11 people (i.e., none at all)?

Pledge Bank claims that 75% of people do follow through on financial pledges, but there’s no enforcement mechanism. I bet most would honor a $10 pledge, but might have second thoughts about a $50 pledge or a $500 pledge, depending on income. This would be especially true if someone could plausibly say either "they'll have enough money without my contribution" or "even if I honor my pledge, enough others won't that the project won't get completed."

A wide range of problems similar to this might be solved by what I call "social escrow", by analogy with escrow agencies that help with real-estate transactions.

A social escrow agency would accept contributions from a large number of people, keeping those contributions in trust until certain conditions are met. For example, the agency could accept checks designated for a particular purpose requiring a specified amount of money. The agency would keep the checks until the financial goal was reached (e.g., $500,000 for the new transmitter), then turn the checks over to the designated organization (e.g., the public radio station). If the goal isn’t reached by a specified date, the checks would be destroyed, leaving the money in the potential donors accounts. I suggest that this “money-back-unless-success" guarantee would make people more willing to donate.

A business called Fundable is offering to handle such transactions for a 7% fee. Maybe, if the idea catches on, competition among social escrow agencies will drive down fees (possibly to zero, if pledged money can be put in an interest-earning account) and spur innovation. For example, additional conditions could be imposed on the recipient -- Fundable just hands over the money to the group leader -- such as a public radio station reducing the amount of on-air fund-raising.

Alex Tabarrok has proposed something called a "dominant assurance contract" whereby people making pledges would receive a bonus if the pledge drive fails. In effect, people pledging would bet on failure of the pledge drive. But because this would be such a tempting bet (either you get a stronger radio signal or free money), lots of people would pledge, the drive would succeed, and the social escrow company wouldn't have to pay the bonuses.

I will discuss further variations on social escrow in a later post.

February 16, 2007

The Tragedy of the Commons (summary)

Hardin's paper has been highly influential, although that doesn't mean that everyone has agreed with everything he wrote. The journal Science has links both to the original article and to commentary published in the same journal.

Here are what I see as Hardin's three main points:

1) some problems can't be solved through better technology, but require a change in human behavior;

2) freedom for individuals to pursue their own self-interest in ways that seem harmless, individually, can collectively result in conditions that hurt everyone -- if I graze two cows rather than one on the village commons, I'll have twice as much milk to sell, and one more cow won't hurt the grass, but if everyone grazes two cows, the grass will be so badly damaged all the cows will starve;

3) freedom for individuals to choose how many children to have is an example of #2 (population will grow enough to undermine human well-being) and #1 (better technology can't solve all the problems resulting from over-population).

I plan to discuss each of these points in this blog, probably (like most previous commentators) paying most attention to #2.

February 8, 2007

Pericles and Pork

The earliest statement of The Tragedy of the Commons I’ve seen is from Pericles (495-529 BC), writing about the key weakness of a potential adversary:
"They devote a very small fraction of the time to the consideration of any matter of common concern, most of it to the prosecution of their own affairs. Meanwhile each fancies that no harm will come of his neglect, that it is the business of somebody else to look after this or that for him; and so, by the same notion being entertained by all separately, the common cause imperceptibly decays."

I suggest that the US Congress has a similar problem. Some members spend so much time working to bring federal money to their own districts (whether out of genuine concern for the people they represent, or just to buy votes) that national problems get neglected. It’s not so much that “pork-barrel? projects are the direct cause of our growing national debt (almost $30,000 per American), but that problems like balancing the budget get ignored in the scramble for pork.

February 7, 2007

The Comedy of the Trojans

In The Tragedy of the Commons (Science vol. 162, p. 1243), Garrett Hardin discussed situations in which each individual can benefit from some action (grazing another cow on shared pasture, or having another child) which, if everyone does it (bringing the number of cows or people above some optimum), leaves everyone worse off.

Similarly, self-interest may keep individuals from taking some positive action which, if everyone did it, would provide each individual with a net benefit (i.e., more than enough to offset individual costs). These are often called "public goods problems." Similar situations involving interactions of only two individuals are known as "Prisoner's Dilemmas." Tragedies of the commons are not limited to interactions among humans.

Here are some examples:
1) Coastal cities worldwide could be destroyed by rising sea levels from melting polar ice, but even a major decrease in carbon dioxide emissions in any one country would not be enough to stop global warming.
2) Most public radio listeners would gladly send a bigger contribution to support their favorite station, if that would eliminate on-air fund-drives. But it wouldn't.
3) Shorter wheat plants produce more seeds per acre, because they waste less energy on taller stems. But natural selection favors taller plants, because they shade out shorter neighbors, which compete with them for soil resources as well as light.

Of course, I will also be discussing possible ways of reversing the tragedy of the commons. Hence the name of this blog, which has nothing to do with a play about a religious leader who reluctantly agreed that it's OK to use condoms to prevent the spread of AIDS -- only within marriage, of course! -- so long as people don't start using them for birth control.

My own research focuses on the evolution of cooperation between bacteria and plants and the implications of various tragedies of the commons (like the wheat example above) for agriculture. See my Department of Ecology Evolution and Behavior web page for recent papers and my old UC Davis web page for older ones. See also my other blog, This Week in Evolution.