Thanks for writing this! While I’ve long been a big fan of impact prize-like-mechanisms, the ideas about memetics and reinforcement learning were nice and novel—or at least if I’d thought about them properly before I’d forgotten them since. I also found the quote from Wei Dai very interesting.
I think you somewhat over-hedged in your openning paragraph however:
Global markets are currently only (somewhat) efficient in incentivising problem-solving in areas where the benefits can be internalised, such as by earning a profit from the product one has built. ^[Ignoring various market failures such as long-time horizons, large coordination problems, high initial costs, and more.]
Within this circumscribed range of problems (those whose benefits can be internalised, without long-term horizons, little coordination required, low capital needs), markets seem to be one of the most efficient mechanisms we have in motivating problem-solving. While we can think of some others that are also very effective, like intellectual curiosity for scientific discovery or parental love for childraising, there do not seem to be many which are dramatically more effective. If markets are indeed a top-tier incentivisation mechanism, calling them only ‘somewhat’ efficient, rather than ‘quite’ or ‘often’ seems to rather understate their potential for market mechanisms to incentivise useful charitable work.
Secondly, I don’t think issues like long time horizons or high initial costs, and many coordination problems, are commonly considered market failures:
There are many examples of markets dealing correctly with issues a long way in the future. For example, Amazon has operated on a very long-term horizon for many years, forgoing current profitability for the sake of growth, and in financial markets there are liquid and rationally priced markets for bonds and derivatives maturing 50 years in the future.
Market mechanisms have incentivised investments in many large projects—a good example is semicondictor fabs, which take around a billion dollars of upfront capital investment before any return can be made.
Although you’re right that there are some classes of coordination problems for which markets can struggle (e.g. holdouts refusing to sell land needed for a large project), there are others at which it excels, like coordinating supply chains across huge numbers of people.
A quick check on some online lists here and here confirms than these three are not generally considered examples of market failure.
As such I think if anything you are underselling the potential here. The fact that markets can deal with these sorts of problems gives me hope for very long-term impact prizes—things like financing projects with tradable impact certificates that ultimately pay off years in the future when the ultimate impact is clear.
Thanks for writing this! While I’ve long been a big fan of impact prize-like-mechanisms, the ideas about memetics and reinforcement learning were nice and novel—or at least if I’d thought about them properly before I’d forgotten them since. I also found the quote from Wei Dai very interesting.
I think you somewhat over-hedged in your openning paragraph however:
Within this circumscribed range of problems (those whose benefits can be internalised, without long-term horizons, little coordination required, low capital needs), markets seem to be one of the most efficient mechanisms we have in motivating problem-solving. While we can think of some others that are also very effective, like intellectual curiosity for scientific discovery or parental love for childraising, there do not seem to be many which are dramatically more effective. If markets are indeed a top-tier incentivisation mechanism, calling them only ‘somewhat’ efficient, rather than ‘quite’ or ‘often’ seems to rather understate their potential for market mechanisms to incentivise useful charitable work.
Secondly, I don’t think issues like long time horizons or high initial costs, and many coordination problems, are commonly considered market failures:
There are many examples of markets dealing correctly with issues a long way in the future. For example, Amazon has operated on a very long-term horizon for many years, forgoing current profitability for the sake of growth, and in financial markets there are liquid and rationally priced markets for bonds and derivatives maturing 50 years in the future.
Market mechanisms have incentivised investments in many large projects—a good example is semicondictor fabs, which take around a billion dollars of upfront capital investment before any return can be made.
Although you’re right that there are some classes of coordination problems for which markets can struggle (e.g. holdouts refusing to sell land needed for a large project), there are others at which it excels, like coordinating supply chains across huge numbers of people.
A quick check on some online lists here and here confirms than these three are not generally considered examples of market failure.
As such I think if anything you are underselling the potential here. The fact that markets can deal with these sorts of problems gives me hope for very long-term impact prizes—things like financing projects with tradable impact certificates that ultimately pay off years in the future when the ultimate impact is clear.