dominant assurance contracts

debords is built on an idea from economics called a dominant assurance contract. here is what it is, and why it works.

an assurance contract is a crowdfund with a goal: people pledge, and money changes hands only if the goal is met. if not, everyone gets their money back. kickstarter's all-or-nothing rule works this way.

its weakness is that waiting is safe. if others will fund it anyway, you can enjoy the result without paying; if they will not, your pledge changes nothing. when enough people wait, something everyone wanted never gets made.

in 1998 the economist alex tabarrok proposed a fix: if the goal is missed, backers get their money back plus a bonus. pledging then pays either way. if the goal is met, you get what you backed; if not, you are paid for trying. it becomes the best move whatever anyone else does, a dominant strategy in game theory's terms, hence the name (his paper, pdf).

it works in experiments. in a study published in 2021, timothy cason, alex tabarrok and robertas zubrickas ran crowdfunding games in a lab: without bonuses, fewer than half the projects were funded; with them, over 60%. refund bonuses, they found, can raise the rate of success by 50% or more (their paper, pdf).

the bonus has to come from somewhere. in tabarrok's version the entrepreneur pays it, betting on success. on debords it comes from guarantors: anyone can bond money behind a seal. if the goal is missed, the bonds pay the backers' bonus, at most as much as each pledge. if the text is released, each guarantor earns the guarantee fee on what they bonded.

a public contract keeps the promise. it holds the money and pays out by its own rules, which nobody can change once a seal is sealed, debords included. how it works has the steps and an example.