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.
They estimate with high probability the limit will only be reached iff they sign up (but this is the case even with a standard Kickstarter, dominant assurance isn’t necessary).
Or
They estimate with high probability that the limit won’t be reached (in which case they’re on average just milking the contract for free cash)
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.
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.
They estimate with high probability the limit will only be reached iff they sign up (but this is the case even with a standard Kickstarter, dominant assurance isn’t necessary).
Or
They estimate with high probability that the limit won’t be reached (in which case they’re on average just milking the contract for free cash)
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.