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Idea Detail
Commitment auctions: sharing costs for a public good
5 votes, Feasibility 73% Originality 77% Humour 0%
The Problem:
Funding public goods or projects that benefit a lot of people other than the buyer.

The Social Invention:
Suppose you want to write an article about electronic money, and there are two people who really need it, John and Alice. Alice is willing to pay 50€ for the article, and John is willing to pay 100€. However, that's the maximum either will pay.

Let's say you know this. However, you have calculated that for it to be profitable for you to release the article, you need to be paid at least 120€. Now you have a problem of setting the price. If you set it at 50€ or less, both will buy, but you will only earn 100£ at best and this won't cover your expenses. If you set it between 50€ and 100£, only John will buy, and you still won't cover your expenses.

Now the solution is that you go to a bank and ask them to set up a commitment auction. The bank then puts up on their website a notice that you will write an article on electronic money for 120€. Now John and Alice can transfer money to the account associated with this auction, but the trick is that if the sum of pledged money does not reach 120€ within a designated time, they get their money back, and the article doesn't get written. However if the pledged money does reach the level, you take all the money and write the article.

Now both John and Alice have an incentive to commit the amount that the article is actually worth to them, so you get 150€, enough to write the article and a 20€ bonus.

This is a sensible way to share costs for a public good: everyone pays what it's actually worth to them. This should be a great way to finance things like art displays, open source software, scientific research or even news reports.

PledgeBank.comdoes something similar (Ed.: though its impetus is not financial services), but it would be much more useful if the bank had the authority to hold the money during the bidding and enforce the contract (in this case that the article was written) like any other work contract.

The fee for setting up the auction should be covered by the one requesting it, and committers should be given regular interest rates on the commitments during the bidding period. This is to make making a commitment as risk-free as possible.
The Author - Harald Korneliussen (Vintermann)
Your Comments (9)
30 Aug '10 04:19
Subject: asdfasdf
Jessica Cauffiel

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19 Jul '10 07:43
Subject: asdfasdf

15 Jul '10 22:32
Subject: asdfasdf

15 Jul '10 13:20
Subject: asdfasdf

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