https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3243656

Introduction

(LR is) as flexible and responsive as the market, but avoids free-rider problems.

  • Flexible and responsive: any one can propose a new public good project, and the project can get enough fundings even when only a small community funds it.
  • Subsidies create incentives for citizens to fund projects.

Background

(Free-rider problem is) due to the expense or inefficiency involved in excluding individuals from access.

Cons of Existing Solutions

  • 1p1v: oppress minorities.
  • Capitalism: inefficiently exclude potential users.
  • Charitable organization: difficult to closely align reliably with the common good.
  • QV: it doesn’t solve the problem of flexibility, a.k.a., it requires a curated projects list.

Model

Assumptions

  • We can verifiably distinguish among and identify these citizens.
  • Any citizen may at any time propose a new public good.
  • Our interest here is in maximization of dollar-equivalent value rather than achieving an equitable distribution of value.
  • Utility function V is concave (国内的叫法一般是反的,即我们平常说的凸函数), smooth, increasing.
  • The deficit is not bounded, a.k.a, the funding solution can collect unbounded taxes.

Economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.

The knowledge is dispersed and rapid changes. To take advantage of this knowledge, people must make decision distributively. People require only relevant information to make better decisions. This communicating mechanism should be

communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system.

It is always a question of the relative importance of the particular things with which he is concerned, and the causes which alter their relative importance are of no interest.

The price system solved it, and

We must look at the price system as such a mechanism for communicating information.

It is an effective communicating system because:

Only the most essential information is passed on and passed on only to those concerned.

It extends the span of our utilization of resources without the control of any one mind. Also, it will make the individuals do the desirable things without anyone having to tell them what to do.

Thoughts

It opened my mind to look at the price system differently. It is an effective way to watch the only the necessary and relevant information, and the messages are propagated rapidly in the system. It makes distributed decisions possible and outperforms central decision authorities in most cases.

Although distributed decisions can achieve local optimum, which may not be the global optimum. We human may also need some centralization to break the equilibrium by a trial and error like method.

References