Christchurch Kickstarters

Why not use Kickstarter to help preserve heritage buildings in Christchurch? I'd take the "Save the Cathedral" folks more seriously if they put up a Kickstarter page listing the donations already committed and the target they need to achieve to have the Anglicans onside for a rebuild.

Kickstarter, for folks who've not been watching, is an excellent mechanism for solving a very particular problem. Suppose that you have some project, like saving the Cathedral, that can only really work out if you have a set amount of money. And, suppose further that there are lots of small donors, like me, who'd be happy to chip in IF it would make the project work out, but aren't happy to throw money into the pot and not get it back if the project doesn't raise enough money. Kickstarter lets people pledge funds that are only charged against their credit cards IF enough people have pledged enough money to make the project viable. If you don't get sufficient pledged funds by the deadline, nobody pays.

For the economists: you can view this as an assurance contract. Or, if you give a few cheap perks for pledges that go through to pledged donors even if the project fails [maybe like a bumper sticker with a picture of The Wizard on it], it's a dominant assurance contract.

This really can work. For projects where folks get fired up, you can even get massive oversubscription. When a video game maker wanted to remake an old favourite, Double Fine, he raised $3.3 million when he really only needed $400k. If rebuilding the Cathedral would cost $50m, you need a million people in New Zealand each putting up $50. If you net out the large pledges the "Save the Cathedral" folks say have already been promised, it'll be less than that.

Set pledge level perks like:

• $5:          You get a Wizard Cathedral bumper sticker, even if the project doesn't go ahead.
• $10:        All prior perks PLUS Your name goes into the big book of donors.
• $50:        All prior perks PLUS Autographed copy of the Wizard's excellent "Upside Down Map of the World With NZ In The Middle"
• $100:      All prior perks PLUS You get a piece of the old cathedral that couldn't be used in the rebuild in a nice box, like the old bits of the Berlin Wall they used to sell.
• $1000:    All prior perks PLUS You get your name carved into one of the stones for the rebuilt church.
• $25,000: Your face is carved as one of the gargoyles [I have no clue what it costs to carve a gargoyle; scale this one up if needed].

They'd need to have the Cathedral's owners on-side to be able to promise some of those perks. But since Kickstarter only activates once enough money is raised to make the project viable, I don't see this being much of a problem. Surely there's some amount of pledged money that would make the Bishop change her mind. 

I know weekly protests are fun and feel like doing something. Kickstarter could actually work though. Wizard: you start the Kickstarter, I'll put in $50 to help get things going. It isn't much, but I don't have strong preferences between having a rebuilt old-style cathedral in the Square and whatever the Anglicans otherwise wind up doing with their property. 

Really, heritage fans ought to be setting up Kickstarters for all their favourite properties. Could be that there's sufficient demand out there to help fund more preservation than we'd otherwise get. There are a few places around town I'd be happy to chip in to help save, conditional on knowing that I'm only chipping in if it makes the project proceed. That's Kickstarter. I don't know whether we're not seeing Kickstarter used in the Christchurch rebuild because people don't know about it, or because they fear deep down that most people really don't have strong enough preferences to put money on the line. Here's helping to let people know about it so that we can rule out that explanation.

Why not Kickstarter?

Christchurch's GapFiller initiative has been, well, awesome. They started after the September 2010 quake and, since February, have had more vacant lots as potential sites. But, a fair number of those sites are now turning into Wilson's-managed parking lots; Gapfiller's having more trouble in finding venues.

A suggestion.

These projects are great and help bring foot traffic to surrounding businesses. Open up a set of GapFiller Kickstarter projects for different sites. Let surrounding businesses know about the project. Set a project goal that provides enough money to cover rent on the site. Kickstarter works via assurance contracts: if they don't raise enough for the project to go ahead, nobody pays; you only pay if enough money is raised in total for the project to be viable. And, there's plenty of opportunity for GapFiller to turn the assurance contract into a dominant assurance contract by providing "GapFiller Supporter" tags to local businesses making the pledge even if the supported project doesn't go through. Then local businesses who'd benefit from the project have some incentive to sign on quickly rather than wait around to see if everybody else donates enough to make the project viable. And the guy with a vacant lot gets at least some revenue stream.

Let me get them started. I'll chip in $25 towards any GapFiller Kickstarter campaign around the New Brighton Mall; $75 if it's a project that my 1 and/or 4 year olds would enjoy (so things that run prior to 7 PM, ideally on weekends). There are a few flattened sites around there from which to choose. It isn't much money, but that's the point of KickStarter - lots of people each putting down a little bit of money gets the project going.

And I'd probably throw a few bucks towards other things around town that I'd expect we'd enjoy.

Assurance contracts and dominant assurance contracts

Frances at WCI notes an innovative use of assurance contracts by Public Enemy.

Political rap band Public Enemy is financing their latest album through www.sellaband.com. This is how it works. The band, in this case Public Enemy, announces a fundraising goal - $75,000 to record an album. Fans make on-line donations through sellaband - but if a fan changes his mind, he can switch his funding to another band at any time, up until the point when Public Enemy's fundraising goal is met. Fans can expect some future payback - downloads, a share of any profits, whatever the band promises.

At first glance, Public Enemy's approach doesn't look so different from Radiohead's or Wikipedia's. Yet individuals' incentives to contribute are fundamentally different. Wikipedia is there whether I donate or not, so the best strategy (warm glow of giving aside) is not to donate.

But imagine that 7,499 other people have aready donated $10 to Public Enemy. My $10 donation brings the total up to $75,000, enough to generate a new Public Enemy album. I have no incentive to withdraw my donation, because if I do, the project won't be funded. My donation is a "pivotal contribution."

Indeed, if any one of the 7,499 people pull out, the project won't be funded. Each one of those 7,499 donations are pivotal, so no one has an incentive to pull out.

In the language of game theory, the situation where Public Enemy's album is financed by 7,500 people each donating $10 is Nash equilibrium - each person is making the choice that is best for themselves, taking the behaviour of other people as given.

Public Enemy's fundraising was successful. But there still was a problem in strategy.

If I think that somebody else would be the pivotal contributor were I to hold back, then I've incentive to refrain from donation until the last minute. Frances is definitely right if we consider only the population of folks who have contributed. Given everyone else's contribution, my dominant strategy is to stay in if I'm pivotal. But there's a whole other domain of folks who might contribute but who haven't as yet. Any of them could be the pivotal donor and I could save my money. If too many folks do that, we can get coordination failure where everyone waits to see if their contribution would be truly pivotal, then fails to sign up because the target looks too far from reach.

Public Enemy ran an assurance contract but not a dominant assurance contract. How to make it dominant strategy, or at least much closer to it, to pledge early and stay in? Provide some item of value to the contributor for pledging early. Suppose everyone who pledges some minimal amount to the assurance contract, and doesn't withdraw his pledge before the deadline, gets a token to download one MP3 track available only to pledgers. If the project goes ahead, the song is included as a special bonus track for contributors. The band then takes the place of Tabarrok's assurance entrepreneur: bearing downside risk of paying out to pledged contributors should the project fail to go ahead but earning returns if it succeeds.

All the incentives for pledgers in the model Public Enemy ran - numbered CDs and potentially a share in album revenues - eventuate only if the project is successful. You want an incentive for folks to go in early and to stay in, helping to ensure that the project does finally go ahead. Paying them for doing so is one way of solving the problem. Public Enemy was successful in raising the $75,000 needed to record another album; they lowered their target from the $250,000 that included marketing and other costs. Perhaps dominant assurance contracts could have helped.

Public Enemy is playing Christchurch next year. So is Weird Al. I wonder how many folks will be in the intersection. Conditional on babysitting availability and spousal indulgence....