Public-goods markets
Public-goods markets
How much of a shared service should a community provide, and who should pay for it? People may agree that cybersecurity, public safety, or well-maintained parks are valuable while disagreeing about how much to spend on them. A public-goods market connects people’s choices about a shared service to what they pay, giving them a reason to weigh its benefits against its costs.
My research with Lucas Rentschler develops these mechanisms and tests how they work. A proposed project with Fabian Wendt and Lucas Rentschler asks how they compare with political alternatives on basic needs, fairness, and fraternity.
How it works
Public goods benefit people who need not contribute directly to their provision. This creates a free-rider problem: someone may prefer to let others pay even when they value the good themselves. Economists have developed cost-sharing rules that encourage choices closer to what is good for the whole community. Our work adapts these rules so that a small sample of people can choose for a much larger population.
In our proposed applications, the process has four parts:
- Define the decision. The organization identifies a service, a baseline level, and a feasible range of additional provision.
- Select participants. A random sample takes part, so the process does not require everyone in the community to attend.
- Make choices with financial consequences. Participants choose how much to add while an interface shows their costs and the total provision. Their costs depend on their choices and those of the other participants.
- Provide the service and settle the bill. The organization delivers the chosen level, with any remaining costs covered by the agreed budget or tax rule.
The university or local government can continue to supply the service. The market helps determine how much it should supply. The rules for sharing the bill matter as much as the rule for choosing the quantity.
From mechanism design to public goods
Mechanism design starts with a problem and asks which rules would help people solve it. Economists have helped design spectrum auctions for allocating rights to radio frequencies and kidney-exchange systems that connect patients with compatible donors when their own willing donors cannot donate to them. These applications show how research on decision rules can become part of institutions people use. Public-goods markets extend this approach to decisions about shared services, with their own practical and ethical questions to address.
Possible applications
One proposed application at Thompson Rivers University would let faculty and students help choose the frequency of phishing-awareness simulations. Participants would make choices within a range set by the university, and Information Technology Services would deliver the selected level using its existing training system. The question is how much training the community wants when its members face the consequences of their choices.
Related possibilities include the frequency of park maintenance, the extent of a trail improvement, or the level of a shared security service. Each application needs a clearly defined decision, an organization able to carry it out, and an agreed way to fund it. These are proposed applications, with their practical and ethical questions still to be tested.
The research
The three projects address successive questions about practical design, ease of use, and moral evaluation.
Can a small sample choose for a larger population?
Our first paper modifies the Groves-Ledyard mechanism to use a random sample, limit individual choices, and account for costs borne by people outside the sample. In a laboratory experiment with a generic good, the modified mechanism provides quantities close to the level that maximizes total earnings. It also produces less variable outcomes than the original mechanism. In a second experiment, participants choose police provision in a virtual environment. The modified mechanism produces quantities similar to the original while requiring fewer than half as many people to participate.
Can the mechanism be easier to use?
Our second paper develops a medianized public-goods market. Its cost rule uses the middle participant choice as a reference, limiting the influence of extreme choices and simplifying the prices participants face. The paper develops the mechanism’s theoretical properties and compares its design with the earlier mechanism and Quadratic Funding. The current draft does not yet report laboratory or field results.
How does it compare morally with political alternatives?
An efficient level of provision does not settle how the costs should be shared or how people should participate. Our proposed project compares a public-goods market, deliberation followed by majority rule, and a decision by a member selected through a competence test. We will examine three concerns:
| Concern | What we will examine |
|---|---|
| Basic needs | Whether provision reaches a subsistence threshold built into participants’ earnings, and whether they feel their needs were met. |
| Fairness | How benefits and costs are distributed across people with different incomes, and how participants judge the outcomes and procedures. |
| Fraternity | Whether participants feel connected to or alienated from others, and how they communicate during the decision. |
What remains to be learned
Results for a generic laboratory good may not carry over to real goods and institutions. Using an unnamed good helps isolate the procedure’s effects, while real payments give choices consequences. Field studies must also examine participation, understanding, the way costs are shared, and whether an organization can implement the resulting decisions.
People’s judgments are part of the moral assessment, alongside the observed outcomes and the arguments for different standards of fairness. The research can identify trade-offs and questions for further testing without settling every objection to a particular application.
Discuss an application
I am interested in hearing from universities, municipalities, and other organizations with a shared service whose level could be chosen in this way. Useful starting points are the service to be provided, the population affected, the available range of provision, and who would pay for it.
Contact me or see my research page.