This isn't retroactive funding, but the wonderful Lewis Carroll bit reminded me of a great organization in NYC called the Hebrew Free Loan Society. As the name indicates it makes zero interest loans to New Yorkers in need, Jewish or not. It has one key loan requirement. There must be a guarantor. Repayment rates are 99%. It turns out that if the borrower has asked a friend or neighbor or sibling to be a guarantor, that makes all the difference for repayment. I've done some philanthropic work with HFLS and am a fan of theirs.

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Wow, this is such a great idea. Congrats to all the inventors!

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As best I can tell, SIBs are basically equities except aimed at privatized solutions to public social problems. Why is it ridiculous to get the payback in the later years of the investment? People invest in stuff like this all the time. It actually makes more sense than cryptocurrency or NFTs in that the payoff is based on extrinsic and measurable factors.

Carroll's approach in which the suppliers are also the investors was a basic element of the US automotive business in the 1920s and 1930s. The suppliers would offer a 30-90 day kite on payment, basically putting up most of the money. The buyers would sign for delivered automobiles with a combined bill of lading and check payable on demand. Payrolls, rent and other supplies would be paid out of profits. Other than the time scale, it is right out of Sylvie and Bruno, but it made America an automobile nation.

(Could Carroll have been playing with the common English practice of merchants providing goods to aristocrats and expecting to be repaid by their custom when they inherit their title? 19th century novels are full of this.)

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Do not universities already work this way, however? Do the actual work of original research and discovey in your PhD, post-doc, and early years as a professor, then have your career's work evaluated, and receive the reward in the form of a near risk free stipend for the next 20+ years, i.e. tenure.

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The problem with using this idea to finance pure science (as opposed to applied science), is that pure science is *a priori* unpredictable. It's easy to calculate the ROI of investing into the development of a smaller and more efficient vacuum tube; it's harder (if not impossible) to calculate the ROI of messing around with impure pieces of germanium. There's no way to monetize the James Webb telescope, and if you give your money to a guy who studies rainbows, he might invent the vacuum chamber -- or he might just blow it all on rainbows. If you could predict what kind of profitable inventions he'd make, then he'd be doing engineering, not science. Engineering is great, don't get me wrong, but you've got to have someone to push the frontiers of knowledge outward, or else you'll be stuck on vacuum tubes forever.

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The real issue with this idea has always been political. There's just not a coalition that can either pass or defend this.

Certain people on the left oppose the profit motive qua the profit motive. At the extreme end you have socialists arguing for decommodification, the idea that public goods should be rationed at all (rather than infinitely available) is wrong to them. In the more moderate version you have center leftists who feel that it's more virtuous to have a government bureau or non-profit tackle a problem (even ineffectively) than have the private market solve the problem. These are the same people who rattle off rather dubious interpretations of what fiduciary duty means.

Meanwhile, the right loves market solutions but doesn't want the government solving these problems. They'd love to privatize public services or solutions to social problems. But they'd love to just cut the government programs even more. Some of the more extreme types want to keep private market solutions out because the dysfunction justifies cuts. Or, as some put it, because it competes with private business.

There isn't an interest group that I could see forming a durable coalition either. Who would it be? The companies that take these bonds? That's a tiny group. I'm not even sure you could get them. Would you rather have to perform or get the same amount of money for fulfilling vague Federal standards? Plus this coalition has a high bar. They have to beat the entrenched interests of the bureaucracy.

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I’m not sure I see the point. It seems to solve a knowledge problem that doesn’t exist. If we know that treatment A works, we can do treatment A and pay for treatment A. If we don’t know whether treatment A works, but we can define a desired endpoint E, then we could do a trial of treatment A. But if we know our endpoint E, don’t know how to get there but believe that the knowledge is “out there” in the market in some inaccessible form, we could put up some retroactive funding… but when endpoint E is reached, how would we know who to give it to? If E is high school graduation, then how would we figure out which of the many ongoing treatments is the one that actually made the difference?

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Can you please clarify exactly how this works? What I got from your post was that:

1. An Activist goes to Wall Street with a proposal to save the rainforest

2. Wall Street invests the necessary capital up front

3. The Activist saves the rainforest

4. Wall Street recoups on its investment with interest, which is paid by... who? The Activist isn't going to get rich by saving the rainforest. The rainforest itself isn't paying for itself. I don't think the voting public would be happy about the government paying Wall Street to save a rainforest that in this counterfactual was saved by the Activist and therefore doesn't seem to have ever been in danger.

What am I missing here?

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Caroll's fellowship works because there are wiley tradespeople who can reasonably accurately predict who will be awarded a fellowship and loan against this possibility. I'm not seeing that for Buterin's projects. Certificates of impact seem to lack the payment; one simply makes a claim after doing something and sells the claim, there's no guarantee of a buyer of that claim.

It seems most similar to openly-offered prizes like the X-prize, only with a higher payoff (the X-prize didn't cover the winners costs) and a longer term.

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Interestingly enough, while Carrol might have developed this idea in jest (or at least as a satire of the conventional academic system) he was no stranger to proposing innovative reforms. He proposed under his real name of Charles Dodgson the simplest and most scalable form of pure proportional representation yet devised, Asset Voting (https://rangevoting.org/Asset.html), in a pamphlet entitled The Principles of Parliamentary Representation (https://archive.org/details/ThePrinciplesOfParliamentaryRepresentation).

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See also: Nobel prizes, which are surely retroactive rewards for impressive scientific public goods.

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Honestly, I don't think the problem here is inventing the appropriate financial instrument. The string theorists have nothing on the smart fellows on Wall Street in terms of inventing rococo Rube Goldberg contraptions that by a P2C2E create output $Y given input $X, with any desired algebraic relationship between X and Y.

I suggest the essential nature of the problem is in the unexamined nature of the phrase "public good." What *is* a public good, eh? I mean, beyond vague handwavy sloganeering, such as "Peace in our time!" "Justice for all!" "No child left behind!" "Death to all who oppose us!"...well, OK, maybe not that last.

But anyway, let us suppose a Public Goods Convention, to which the 100 wisest philosophers of our times will be invented, who will draw up a complete list of the top 10 Public Goods to be pursued collectively, outlined in sufficiently precise detail that the most antagonistic well-paid contracts lawyer would not be able to dispute a claim for payment. (The Convention would obviously need an auxiliary staff of 10,000 lawyers, in accordance with the usual 100:1 lawyer:useful person ratio of large government projects, to do the actual drafting.)

Can we imagine such a Convention, in real life? Can we imagine it being created by our Congress, signed into law by a plausible occupant of the White House in the next 10 years? Can we imagine it drawing the near universal support it would need to be more than a grand futile gesture? We are a people who cannot agree on how much money should be spent fixing bridges, or a self-consistent, stable, sensible set of precautions in the face of a (historically speaking) rather mild pandemic. I'm not entirely confident we could, as a nation, reach consensus on the direction in which the Sun sets.

The notion that we could readily agree not only on the top-line 140-character summary description of the Public Goods We Ought To Fund *but also* on the many paragraphs of detailed and precise specification necessary to turn over the implementation to financial wizards and entrepreneurs without clogging up the courts for centuries on questions of intrepretation, seems...naive, let us say.

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It was also common at least in the eighteenth or nineteenth century for parliament in Britain to award large sums of money to people who made important inventions, but failed to become rich due to them.

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Carroll's original idea is also doomed because a short-sighted administrator at the university can also just decide to... not pay out. Yes, this dooms the university (or at least the scheme) as well, but such things happen.

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The UK government actually does a form of them, though I'm not sure at what scale. https://www.gov.uk/guidance/social-impact-bonds

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Nice! I invented it too, good to know I'm in good company:


I've been feeling smug because (on a cursory search, I could be wrong) I seem to be the first one to use the term "Retroactive Public Goods Funding", but I knew others had similar ideas in the past.

I mostly wrote the post so I could have a clean explanation I could point to later. It might be a useful explainer for people who are new to this concept.

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Jan 4, 2022·edited Jan 4, 2022

Are financialized retroactive futures or even Carroll's whimsicial academic futures more or less vulnerable to fads than other sorts of futures? How would retroactive funding have tracked fusion or AI research over the years, for example?

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Can anyone explain to me exactly how retrospective public goods funding would work, in practice, using a small-scale example?

Like, suppose I've got a million bucks a year to spend on improving the town of Farmingville, Maine. How do I do it?

Option 1 (overly specific): I choose something that I want built (a new park, say) and announce that I will pay a million dollars retrospectively to whoever builds a park satisfying a certain set of criteria. Someone will buy the land, build the park, and get the million bucks, but for me it probably winds up less efficient than simply buying the land and hiring a contractor.

Option 2 (a bit vague): I want to increase foot traffic in the downtown area, so I announce that I will pay bounties for initiatives which achieve this. Sure enough, a bunch of initiatives spring up, and foot traffic goes up twenty percent! But how do I decide which initiatives are actually responsible for the effect? How do I dole out the money?

Option 3 (really vague): I simply announce that I'll retrospectively fund things that seem like they were good ideas. Same problems as Option 2, but worse.

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Someone may already have a list, sorry if I missed it.

Possible Failure mode 1: it turns into a popularity contest, rewarding looks and charisma as much as achievement.

PFM2: promising researcher dies young, leaving family and creditors to deal with huge debt.

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I would like to see the welfare system reorganized in a similar way. There should be a market system paying out private entities for most successfully improving people's lives

I thought of this regarding Native bands in Canada. I can guarantee if I grew up on a reserve with few jobs and guaranteed welfare it would not be a positive influence on my life. This is probably a good description of poor inner cities in the US. The system needs to become dynamic and results oriented. The time for welfare X-prizes has come!

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You could add Advance Market Commitments to the list. Btw, something else that keeps getting re-invented are income sharing agreements. Milton Friedman called them human capital contracts.

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