White Paper: Blockchain in Public Goods Allocation
Unlocking economic value and equitable distribution through token-based markets
What would happen if we were to view a much wider variety of public goods as being susceptible to market-based price discovery, for instance, in the way that commodities such as gold or petroleum are traded in both spot and futures markets?
Andreas Freund (The Blockchain Swiss Army Knife, ConsenSys) and Lewis Cohen (Co-Founder, DLx Law) reimagine the equitable allocation of public goods through tokenization. This white paper introduces a novel, fair method of tokenizing impure public goods that carry some level of scarcity.
Naturally occurring public goods (e.g., water, forests, beaches) are often thought of as “free” public utilities — something with a virtually unlimited supply that can be consumed without any direct economic cost.
We are all considered the “owners” of these public goods. In most cases, we do not expect to be “charged” for their consumption. Because we tend to think of these public goods as abundant, we do not worry too much about their limited supply or the need to provide equitable access and fair allocation.
Although there is a general acknowledgment of an economic cost to many human-made public goods such as highways, airports, and libraries, which must be recovered through some sort of fee, toll or charge, there is little thought given to the effectiveness of cost-recovery schemes or the impact of cost recovery methodologies on the efficient allocation and utilization of these resources for the assets.
Pure vs. Impure Public Goods
- In economics, a public good is a good that is both non-excludable and non-rivalrous. Economists further segment public goods into “pure” and “impure.”
- A “pure” public good is one where an individual’s consumption of the good does not in any way impact others’ opportunity to consume the same good and where, as a practical matter, individuals cannot deny each other the opportunity to consume the good.
- An example of a “pure” public good is street lighting: one individual’s enjoyment of the lighted street does not in any way detract from that same enjoyment of others. Likewise, it is not possible to light a street for some individuals while excluding others.
- What interests us here are “impure” public goods — those where at least to some extent the consumption by one individual negatively impacts the ability of others to do so (i.e., there is some level of scarcity).
Challenges with the current impure public goods fee structure
- Due to many factors, it is difficult to construct a market for many impure public goods.
- There are economic costs involved, and limitations in access (not everyone can visit a park, bask on a beach, or simultaneously enter a congested downtown area).
- Additionally, many practical frictions limit how available resources are allocated and how costs can be recovered.
- As a result, the true economic value of impure public goods and their optimal usage can be difficult to determine.
- Fees for accessing and maintaining public goods be it tolls or admittance fees, tend to be structured as flat amounts that do not reflect the complex dynamics of both supply and demand.
- Until recently, we lacked the technological means to let markets address the cost allocation problems of public goods at scale.
Head to the ConsenSys Signal blog to read more of the white paper overview. Click here to download the full white paper.
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