Betting against public goods that you want

In my first article about funding public goods, I mentioned in passing the Wall Street performer protocol, which involves bonds that pay out when a certain public good is provided. In this article, instead of talking about them as bonds, I’m going to think of them as bets — bets on whether the public good will be provided.

But the curious thing is this: people who want to help fund the public good do so by betting that the good won’t be provided. How does that work?

Funding public goods

Public goods in economics are those things that are desirable, but neither rivalrous nor excludable. That is, one person’s enjoyment of the good doesn’t detract from anyone else’s enjoyment of it, and it’s impossible to prevent people who haven’t paid for it from enjoying it.

For the purposes of this article, the main example of public goods I’ll be referring to is that of free cultural works, such as open source software and public domain audiobooks.

Obviously, a lot of these public goods are being produced, sometimes for altruistic reasons, sometimes for fun, and sometimes because it makes economic sense for the producer of the good, even if no-one else who will enjoy the good contributes.

Now, there’s nothing wrong with altruism, but people can only afford a certain amount of it, so perhaps we could have even more public goods if we could figure out an efficient way of funding them. How well can we do?