Earlier this month, a crowfunding platform launched solely to raise money to create adult-only games. This week, teachers from schools in Portland, Oregon turned to crowdfunding to help close gaps in funding for classroom equipment.
And last week, we ran an interview on this page with Julia Salasky, the founder and chief executive of CrowdJustice. Her platform enables people to crowdfund their legal case. It was responsible for allowing members of the public to put money behind The People’s Brexit Challenge, for instance.
We’re now all familiar with traditional donation-based crowdfunding, and the debt and equity crowdfunding platforms enabling early-stage businesses to access investors. But what could new models bring to the world?
Imagine, for example, if you could replace the grant system for scientific research, or the bidding processes of heritage organisations or NHS trusts with a smart platform. Or if local social care provision was via a platform that connected those who needed a service, provided a service or were happy to pay for a service (think of friends who say they’d happily pay a bit more to keep the NHS afloat).
Just as CrowdJustice creates a three-way relationship between people who wouldn’t usually be connected in the legal world, how about topping up procurement for state education? The school/child would be the recipient, the school/academy trust would be the service provider and the parent/private individual would be the backer/investor.
There are numerous reasons why these things won’t happen, at least any time soon. But here’s one idea for how future crowdfunding-based models could work.
Alex Tabarrok, economist and Marginal Revolution University co-founder, published a paper two decades ago that put forward a solution to the free rider problem in market provision of public goods – a problem because public goods are non-excludable (you can’t stop people who haven’t paid from using them) and non-rivalrous (one person’s use doesn’t impinge on someone else’s).
Social care, scientific research and schooling are not public goods – you can exclude people, and if one person is taking a school place or a carer’s time, someone else can’t. But Tabarrok’s solution – the dominant assurance contract – solves another issue at the same time: the forced rider.
A forced rider is someone who has to pay for a service even if they don’t benefit from that service. Perhaps people endure being forced riders because we all think things like schools or social care should be provided, and there’s no way of providing them, save the state. So even if the process is inefficient and often seemingly unfair, we put up with it.
The dominant assurance contract is an example of an alternative way. In a traditional assurance contract, people pledge to fund a public good, provided enough other people pledge to fund it too. No money is taken unless enough backers come in and fund. This is already the norm on donation and rewards-based crowdfunding platforms like Kickstarter.
A dominant assurance contract adds a layer: the individual or company agreeing to produce the product or public good if a funding target is reached also agrees to do so on the grounds that, if x or fewer people pledge, they will pay out a sum of money (“prize”) to those who did. As Tabarrok says: “pledging is now a no-lose proposition – if enough people pledge you get the public good and if not enough pledge you get the prize.”
Harvard researcher Jameson Quinn trialled Tabarrok’s idea in 2013, raising money for The Center for Election Science. Each backer agreed to give $60 if 20 or more pledged. If fewer than 20 did, Quinn would give them $5 each, and they would pay nothing. It worked. The final three pledges only came in the last half an hour, but the prospect of potentially getting $5 for nothing meant that, even for the least interested, there was an incentive to participate in the fundraise.
Having a go
Crowdfunding technology is evolving all the time, with more data analysis and increasingly sophisticated interactions being built in. And complementary technologies like smart contracts, which execute automatically based on pre-defined rules, are already in use.
Not everyone who needs a public service can pay. But a lot of people could pay a bit, and there are people who could be incentivised – rather than forced – to pay more. And crucially, funds can go direct to a provider on behalf of a recipient, rather than be re-routed via a centralised body that takes a slice and makes decisions on others’ behalf.
The right models could mean roads and airports funded by people near them or who use them; competing schools that lower the cost of education while raising standards; more policemen where people feel unsafe.
With an estimated adult social care funding gap of £3bn by the end of this parliament, isn’t it time to turn to technology and make the provision of services more efficient, cheaper, more accurate, and fairer?