Hey! Thanks for writing this up, I’m a huge fan of weird funding proposals haha. Let me try and summarize the proposal to see if I understand it. I found some of the terms to be confusing, so refer to the Donald’s terminology in “quotes” and my personal interpretation in (italics)
Set aside a “subsidy market” (aka funding pool) to match “investor” (allocator) money
Each “venture” (project) starts with a “cost bar” (funding target)
Investors buy into each venture via dutch auction; call the total raised T.
The subsidy market scales up the T by a multiplicative factor R; eg if R = 2.5, then the subsidy market provides a 150% match.
If R*T > cost bar, the venture is good to go; excess is returned to the subsidy market.
Later, once the venture is complete, “funders” (final oracular funders) decide how much good the venture achieved, and pay the total to the investors.
Excess funds are also returned to the investors.
None of the examples seem to illustrate the investors actually earning positive return, so I’ll draw one up:
Project with cost bar $2m
Raises a total of 10k shares * $100 per share = $1m
Subsidy market scales this up to $2.5m (then takes back $0.5m since that’s above the bar)
Project ends up spending $1.5m and generating 3m utils; $0.5m is scaled down to 200k and sent to the investors ($20 per share)
Funder pays $3m for the project ($300 per share)
So in total:
Investors paid $1m and got $3.2m = +2.2m
Project gained 1.5m to spend = +1.5m
Funders spent 3m = −3m
Subsidy market spent 1.5m, took back 0.5m, scaled down 0.3m = −0.7m
which all balances out.
The main new thing in this proposal seems to be the “subsidy market” which 1) pays out as a matching pool for projects which counterfactually wouldn’t have been funded, and 2) absorbs surplus when a project is overfunded? And 2) is an attempt to solve Scott’s question of “who gets the surplus from a profitable venture”? It’s this part I’m most confused about
It’s not clear to me that this subsidy market leads to better outcomes—specifically, it seems to mess with the incentives such that the people running the venture don’t care about spending the money well? Your first counterexample with the 20m utils seems to address this, but it’s not very reassuring—the case where “the fact that $10m and $1m buy the same thing is known up front” is a pretty big ask, IMO.
Also, with the way the system is set up, the subsidy market seems to earn money when projects don’t actually need its funding (in the High Returns example), and lose money when its funds are actually useful (in my example). This is deeply weird to me—if I were viewing the subsidy market as a lender, it would seem “fair” somehow to pay it back extra if its funds were actually used, rather than when it sits by twiddling its thumbs.
One adjustment/framing that makes more intuitive sense to me is to make the subsidy market as just another shareholder; e.g. if it scales up T to 2.5T and thus is bankrolling 1.5T/2.5T = 60% of the operation, it should just get 60% of the total profit among all investors.
1)The subsidy market is a buffer of money, not a long term source. R should be adjusted so the amount of money flowing in and flowing out are the same.
3) I was trying to generalize a Vickrey auction, but I think I messed that up. Just use whatever kind of auction you feel like.
5) If the amount raised is less than the cost bar, the project can try to muddle through with the money they have, or can refund the investors/ cancel the thing.
7) Yes, and scaled down to reverse the scaling up.
None of the examples illustrate the investors making positive returns. The scheme is delibirately set up, so that in the limit of ideal markets, the investors make nothing. In practice the investors would probably make something, but hopefully not much. Well the investors sometimes win, but its counterbalanced by a loss.
This scheme should pay any project that produces at least 1Rutil/$, and not pay any other projects, always selecting the highest util/$ variant if there are multiple variants. If we assume project managers are paid a fixed fair salary, there is nothing to threaten them with, unless you want to threaten to cut off funding to an effective charity, because you think it could be even more effective.
This lack of incentive (so long as your util/$ is above some threshold) is what would happen in a regular retroactive system, where all shares are sold, or where you didn’t in practice care how much “credit” you ended up with. (Because you couldn’t turn that credit into money)
Giving the project manager 1% of the shares would produce some incentive in the right direction. Or you could just hope they are all altruists.
I was kind of thinking like the subsidy market more as a currency exchange.
You could replace the scaled down and scaled up money with 2 different kinds of crypto token.
The whole point of the subsidy market is to move money from the easy wins with loads of money, to the marginal cases that are just about worth doing, while leaving the no hopers behind.
None of the examples illustrate the investors making positive returns. The scheme is delibirately set up, so that in the limit of ideal markets, the investors make nothing,
Ah, I wasn’t sure whether this was a core principle of the proposal or not. In that case: why do the investors bother to participate at all? What incentivizes them to do a good job?
This is the problem you’re pointing to under “Silly Money”, I think—that investors have no skin in the game.
In a competitive market, the investors make a tiny amount of profit. Suppose widgets cost $100 to make. All widget buyers always choose the cheapest widget. If you start selling them for $200, someone else can undercut you by selling them for $180. The only equilibrium is selling widgets for $102 or something. Just enough to make a slim profit, but not enough for anyone to try undercutting you. Of course, if you and you alone have a way to magic widgets out of nothing, then you can make fat profits. This is roughly how a lot of markets work. Its why there are commodity prices, and those making commodities have slim profit margins.
Note that it is easy for investors to loose money by being stupid. And they can potentially turn a large profit if they are a unique source of exceptionally good info. They just can’t turn a large profit in a large pool of similarly competent investors.
The investors have skin in the game, and as long as the investors maximize money, the system should work. The problem is that if people are prepared to burn their own money, they can burn other money with it. (Ultimately meaning some charities get less funding if the silly money gets added in the wrong place than if the silly money had just directly burned their cash at home)
Hey! Thanks for writing this up, I’m a huge fan of weird funding proposals haha. Let me try and summarize the proposal to see if I understand it. I found some of the terms to be confusing, so refer to the Donald’s terminology in “quotes” and my personal interpretation in (italics)
Set aside a “subsidy market” (aka funding pool) to match “investor” (allocator) money
Each “venture” (project) starts with a “cost bar” (funding target)
Investors buy into each venture via dutch auction; call the total raised T.
The subsidy market scales up the T by a multiplicative factor R; eg if R = 2.5, then the subsidy market provides a 150% match.
If R*T > cost bar, the venture is good to go; excess is returned to the subsidy market.
Later, once the venture is complete, “funders” (final oracular funders) decide how much good the venture achieved, and pay the total to the investors.
Excess funds are also returned to the investors.
None of the examples seem to illustrate the investors actually earning positive return, so I’ll draw one up:
Project with cost bar $2m
Raises a total of 10k shares * $100 per share = $1m
Subsidy market scales this up to $2.5m (then takes back $0.5m since that’s above the bar)
Project ends up spending $1.5m and generating 3m utils; $0.5m is scaled down to 200k and sent to the investors ($20 per share)
Funder pays $3m for the project ($300 per share)
So in total:
Investors paid $1m and got $3.2m = +2.2m
Project gained 1.5m to spend = +1.5m
Funders spent 3m = −3m
Subsidy market spent 1.5m, took back 0.5m, scaled down 0.3m = −0.7m
which all balances out.
The main new thing in this proposal seems to be the “subsidy market” which 1) pays out as a matching pool for projects which counterfactually wouldn’t have been funded, and 2) absorbs surplus when a project is overfunded? And 2) is an attempt to solve Scott’s question of “who gets the surplus from a profitable venture”? It’s this part I’m most confused about
It’s not clear to me that this subsidy market leads to better outcomes—specifically, it seems to mess with the incentives such that the people running the venture don’t care about spending the money well? Your first counterexample with the 20m utils seems to address this, but it’s not very reassuring—the case where “the fact that $10m and $1m buy the same thing is known up front” is a pretty big ask, IMO.
Also, with the way the system is set up, the subsidy market seems to earn money when projects don’t actually need its funding (in the High Returns example), and lose money when its funds are actually useful (in my example). This is deeply weird to me—if I were viewing the subsidy market as a lender, it would seem “fair” somehow to pay it back extra if its funds were actually used, rather than when it sits by twiddling its thumbs.
One adjustment/framing that makes more intuitive sense to me is to make the subsidy market as just another shareholder; e.g. if it scales up T to 2.5T and thus is bankrolling 1.5T/2.5T = 60% of the operation, it should just get 60% of the total profit among all investors.
1)The subsidy market is a buffer of money, not a long term source. R should be adjusted so the amount of money flowing in and flowing out are the same.
3) I was trying to generalize a Vickrey auction, but I think I messed that up. Just use whatever kind of auction you feel like.
5) If the amount raised is less than the cost bar, the project can try to muddle through with the money they have, or can refund the investors/ cancel the thing.
7) Yes, and scaled down to reverse the scaling up.
None of the examples illustrate the investors making positive returns. The scheme is delibirately set up, so that in the limit of ideal markets, the investors make nothing. In practice the investors would probably make something, but hopefully not much. Well the investors sometimes win, but its counterbalanced by a loss.
This scheme should pay any project that produces at least 1Rutil/$, and not pay any other projects, always selecting the highest util/$ variant if there are multiple variants. If we assume project managers are paid a fixed fair salary, there is nothing to threaten them with, unless you want to threaten to cut off funding to an effective charity, because you think it could be even more effective.
This lack of incentive (so long as your util/$ is above some threshold) is what would happen in a regular retroactive system, where all shares are sold, or where you didn’t in practice care how much “credit” you ended up with. (Because you couldn’t turn that credit into money)
Giving the project manager 1% of the shares would produce some incentive in the right direction. Or you could just hope they are all altruists.
I was kind of thinking like the subsidy market more as a currency exchange.
You could replace the scaled down and scaled up money with 2 different kinds of crypto token.
The whole point of the subsidy market is to move money from the easy wins with loads of money, to the marginal cases that are just about worth doing, while leaving the no hopers behind.
Ah, I wasn’t sure whether this was a core principle of the proposal or not. In that case: why do the investors bother to participate at all? What incentivizes them to do a good job?
This is the problem you’re pointing to under “Silly Money”, I think—that investors have no skin in the game.
In a competitive market, the investors make a tiny amount of profit. Suppose widgets cost $100 to make. All widget buyers always choose the cheapest widget. If you start selling them for $200, someone else can undercut you by selling them for $180. The only equilibrium is selling widgets for $102 or something. Just enough to make a slim profit, but not enough for anyone to try undercutting you. Of course, if you and you alone have a way to magic widgets out of nothing, then you can make fat profits. This is roughly how a lot of markets work. Its why there are commodity prices, and those making commodities have slim profit margins.
Note that it is easy for investors to loose money by being stupid. And they can potentially turn a large profit if they are a unique source of exceptionally good info. They just can’t turn a large profit in a large pool of similarly competent investors.
The investors have skin in the game, and as long as the investors maximize money, the system should work. The problem is that if people are prepared to burn their own money, they can burn other money with it. (Ultimately meaning some charities get less funding if the silly money gets added in the wrong place than if the silly money had just directly burned their cash at home)