Dominant Assurance Contract aka Refund Bonus Explainer
I created the dominant assurance contract aka the refund bonus mechanism in 1998–it’s a mechanism capable of producing some types of public goods privately–in recent years working with Tim Cason and Robertas Zubrickas I’ve put refund bonuses to the test in lab experiments and they work! I’ve written an accessible Refund Bonus Explainer that covers […] The post Dominant Assurance Contract aka…
In 1998, the author invented the dominant assurance contract, also known as the refund bonus mechanism, a system that can create public goods privately. Tim Cason and Robertas Zubrickas collaborated with the author to test refund bonuses in laboratory experiments, with successful results. An example from the author's work is the "dike," a public good that benefits everyone nearby once constructed.
However, it's challenging to finance such public goods, as per Paul Samuelson's 1954 theory. Each individual can improve their situation by underestimating the value they place on the collective consumption activity, leading to false signals and a preference for pretending to have less interest than they actually do. This, according to Samuelson, results in "no decentralized pricing system can serve to determine optimally these levels of collective consumption," with public goods ultimately being the responsibility of governments.
The refund bonus mechanism challenges this conclusion, and the author invites readers to explore the topic further in their Refund Bonus Explainer.
Written by urgent.news from Marginal Revolution's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
