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 falsely that he does not need the street.
In other words, this solution gets rid of the potential free-riders by (1) identifying them, and (2) setting up the rules to blackmail them. -- “I know that you also need this done, so if you don’t contribute, it won’t get done.”
If you make a mistake, and incorrectly assume that Frank needs the street, but in fact he does not, your project has failed (and you also need to pay money to everyone who contributed). The same thing happens even if Frank actually needs the street, but he is too paranoid to trust you. Or if Frank is (or wants to become) your competitor, so he will sacrifice the potential benefit of the street, in order to significantly hurt his competitor. Now imagine this scaled to a population with 10000 people, containing 100 Franks. Good luck!
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.
Yes, you need to solve two problems (according to Tabarrok) to solve public goods provision, one of which is the free-rider problem. Dominant assurance contracts only solve the free-rider problem, but you need to also solve what he calls the information problem to know how to set the parameters of the contract.
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 falsely that he does not need the street.
In other words, this solution gets rid of the potential free-riders by (1) identifying them, and (2) setting up the rules to blackmail them. -- “I know that you also need this done, so if you don’t contribute, it won’t get done.”
If you make a mistake, and incorrectly assume that Frank needs the street, but in fact he does not, your project has failed (and you also need to pay money to everyone who contributed). The same thing happens even if Frank actually needs the street, but he is too paranoid to trust you. Or if Frank is (or wants to become) your competitor, so he will sacrifice the potential benefit of the street, in order to significantly hurt his competitor. Now imagine this scaled to a population with 10000 people, containing 100 Franks. Good luck!
Yes, you need to solve two problems (according to Tabarrok) to solve public goods provision, one of which is the free-rider problem. Dominant assurance contracts only solve the free-rider problem, but you need to also solve what he calls the information problem to know how to set the parameters of the contract.