Economics Of Public Goods
Welcome to all our subscribers. What will be shared today and the days ahead are free alpha from our Economics Design's researchers. TLDR below. This is not financial advice.
In general, you can think of goods as two main categories: private goods and public or common goods.
What are common goods?
Public Goods: There is a little bit more of a barrier here as you need to fit certain criteria to join this space like a country club where you need to get memberships or you need to have X amount of qualifications or X amount of attributes to be able to join this public goods community.
Common goods: On the other hand, common goods are goods that are for everyone to use so you don't need to be a superstar or a supermodel and everyone like you and me can just join and enjoy it. Examples of common goods in the real physical world are parks, libraries, and oxygen. These are infrastructures given either by the world like water or built by a country system or a nation-state like parks and libraries.
Lesson one in economics is that there's no such thing as free lunch and there's an opportunity cost to everything.
Incentive Misalignment: How do common goods fall into this category of no such thing as free lunch?
Common goods are very difficult to maintain. For example, water is free for everyone to use but look at all the water pollution that occurs. If you look at who is cleaning up the water or who is taking care of these common goods you will see that not many people are doing that because they are not incentivised to do it. Economics is mainly about incentives and how these affect different people's behaviors. In that sense, one of the biggest problems with common goods is that there is an incentive misalignment and people are not incentivised to want to take care of things.
What Else Did You Miss?
Incentive Alignment: How do we align the incentives?
Participatory Economics
How can we apply participatory economics in a more tangible sense?
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TLDR:
Common goods are goods that are for everyone to use like parks, libraries, and oxygen. In the physical world, common goods are destroyed because no one has the incentive to take care of them. Today in the DeFi world it can be different because we have an incentive to want to take care of them. Participatory economics functions via a token-based ecosystem where the token is an incentive to affect people's behaviors and encourage them to do good in these public goods that we are creating.