The Future of Public Goods

By Michael Munger

Local governments do many things, and those things are generally funded by taxes, rather than user fees. The largest categories of local budgets are education and social welfare, but there are also lots of mundane things like building maintenance, pothole repair, and cutting the grass at the city park.

The usual story in policy studies is that the state “must” supply public goods, because markets can’t. The technical details are that public goods are non-rival (if I use some, there is no less for you) and non-excludable (if you don’t pay, you can’t easily be prevented from enjoying the thing).

At the local level, parks might be an example: putting up a fence around a large park is expensive, and even then someone could see the park and its lovely trees out the window of a house across the street. To exclude use of the park would be so expensive it would prevent any market provider from making money.

The problem is that “non-excludability” is really just a technological problem, because the ability to charge and withhold access is beyond our reach, at least at reasonable cost. But that’s changing, fast.

Imagine that your community, let’s call it Friendlyville, has the sorts of needs that all communities have: work on the school, work on the park, and fix the sink in the town hall. Anyone who works for the town, or anyone who lives in the community, can suggest that something be added to the “to do” list.

As you walk around town, you can turn on the virtual reality (VR) component of your smart glasses. When VR is activated, the world around you has a superimposed “grid,” with a description of the jobs or activities on the “to do” list. It works like a wedding registry, with the listing (“fix sink in town hall”), the price (a bid from a local contractor) and a name field that lists the identity of the member of your community who has committed to pay for this item.

Operating behind this visual representation is a blockchain app that mimics a number of parts of the “Pokemon Go” game, allowing you to look at virtual “things” and interact with them. You can commit to paying for the mowing job at the park; that grass is looking pretty shaggy. Or the shrubs at the school, or anything else on the “to do” list. When you “look” at the job to be done, or the grid representation, you can just say “commit,” and your name appears on the system as having promised to pay for that local public good.

How will you avoid being taken advantage of, paying the “chump’s” cost of being the only one to contribute? There are two things here that are different from the usual decentralized and anonymous public-goods-provision setting.

1. When you commit to pay for the mowing job, your name is listed for everyone to see. Normally, public goods are paid for out of general revenues, and the “credit” you get for contributing to the community is doubly anonymous: no one knows how much taxes you pay, and your tax money is just put into a big pile so you have no direct sense of contribution.

2. Blockchain! The way the system works, you have committed to pay for the mowing job. You can’t back out; your commitment is enforced by encumbering the funds in your bank account for some set period. But the money is not actually removed from your bank account, at least not until everyone else, or almost everyone else, has also committed. The blockchain uses a consensus protocol, possibly defined along “proof of stake” lines, that doesn’t execute the “contract” until some proportion of taxpayers have stepped up and committed to contribute.

Together, the visual representation of needs, the “wedding registry” system of giving credit for contributing, and the blockchain “smart contract” system for ensuring excludability, can solve a lot of the problems that until now have prevented “public goods” from being provided privately.

In other words, give me the code for a wedding registry, “Pokemon Go,” and some VR glasses, and I can change the world. Local “public goods” can be privately supplied, with software that is available essentially off the shelf.

Of course, you can say that these activities are all just low-hanging fruit, and many difficulties of coordination remain. And that’s right. But it’s interesting to think of just what can be accomplished even on this modest scale. Many of the problems of unaccountability in bureaucracy are solved, because the activities and prices are private bids.

It is notoriously difficult, in standard bureaucracies, to monitor work and fire bad employees. But in the blockchain system the person who paid for the “to do” list item can make sure it is done satisfactorily, and then write a review. These reviews can help weed out contractors who do a bad job, effectively “firing” them.

It’s true that many problems remain to be worked out before this system could be implemented. My point is simply that we are closer than you might think, using existing pieces of software that can be easily adapted, and the ability of people in small communities to cooperate voluntarily, without coercion or inefficient bureaucratic structures.

 

Sign up here to be notified of new articles from Michael Munger and AIER.

Michael Munger

Michael Munger is Professor of Economics at Duke University and Senior Fellow of the American Institute for Economic Research. His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.