Understanding public goods and commons, their role in society, and new opportunities made possible by web3

TLDR: Public goods and Commons are an important class of products that are typically under-funded due to shortcomings in existing market mechanics but create tremendous value for individuals and whole ecosystems. Web3 provides an ideal testing ground for mechanisms that solve this investment gap. The next “Funding the Commons” event on June 24-25 in NYC will continue bringing together investors, mechanism designers, and builders to drive progress on this goal.

Overview

While the term “public goods” has recently become popularized in web3 and regenerative finance circles, it is a concept whose study stretches back to the 1950’s when it was coined by economist Paul Samuelson and more recently was pushed forward by luminaries such as Elinor Ostrom. Here we seek to deliver a simplified introduction to the concept and why web3 is a testing ground to improve development of these goods.

What is a public good or commons?

Source: Stanford Encyclopedia of Philosophy

Any good (product / service / resource) can be classified by two key characteristics:

• Rivalrous vs. non-rivalrous: If I use a good, someone else can’t (i.e. scarcity)

• Excludable vs. non-excludable: I can set criteria on who has access to a good (e.g. via a business model)

So the two key characteristics of public goods are that nobody is prevented from consuming them (“non-excludable”) and that their consumption by any individual doesn’t diminish any other’s ability to consume them (“non-rivalrous” or no scarcity). Common examples include breathing clean air or societal examples like rule-of-law, though we might also include the free knowledge of Wikipedia. A more recognizable situation is when the consumption of a good does diminish others’ ability, making it a common good instead. This might include pasture land for grazing cattle or some forms of knowledge.

Developing and governing public goods, commons

We would make an assertion that an ecosystem (nation, industry, etc.) is better off with a certain (nonzero) amount of public goods and commons. However, the current dominant market mechanism, capital markets, does not properly incentivize the development and maintenance of these goods which has led to two main problems deemed as “market failures”:

• “Free rider” problem: parties who do not contribute resources to developing a good use and benefit from it

• “Tragedy of the Commons”: individual actors act in their own self-interest and deplete a common resource, to the detriment of the broader ecosystem

Failures in the existing market paradigm has led to underinvestment; new solutions are needed to ensure the appropriate level of development in these important goods.

How are public goods and commons currently supported?

One way to think of public and network goods is the scope by which they create impact and are funded (e.g. nation state, the internet, web3 ecosystems). For simplicity in this discussion we use the term “network goods” to indicate a public good on the scale of a specific network of interacting individuals and organizations, especially since the distinction between a public good and common good can be unclear in the case of some knowledge and software goods.

Existing solutions to the public and commons goods typically take the form of two general categories of mechanisms:

• Community: bottom-up reallocation of resources by individuals and groups who capture sufficient value as a collective governance or social norm

• Rules-based: top-down regulatory / centrally enforced value capture and reinvestment dictated by a central power

Societal public goods and commons

Because of their collective benefits, public goods are understood to be an essential component of any society.

The dominant funding mechanism in this case has been taxation, whereby a large enough entity (a national government) can capture enough value from public goods to sustainably redirect funding towards goods that could not be funded by any one smaller organization. Community - driven and individual philanthropy has also been a social mechanism to redirect localized excess value captured into public goods and commons.

Government funding is by nature a top-down centralized endeavour which often delivers suboptimal local outcomes - this has, however, led to great innovations that enabled further public goods and commons to flourish such as the internet.

Internet public goods and commons

The internet gave rise to “digital public goods” most commonly in the form of open-source software (e.g. linux) and knowledge distribution (e.g. wikipedia). Open source software has created an enormous amount of value for society. The development and maintenance of foundational internet protocols such as TCP/IP, HTTP, FTP, and SMTP have brought free, non-excludable, and non-rivalrous access to information to a global community.

With the lack of a central “internet government”, the mechanisms to fund these technologies has primarily been community driven philanthropy or by the emergence of large organizations / companies that accrue enough value to subsidize the development.

Web3: a new public goods and commons paradigm

We believe Web3 presents an opportunity to develop new public goods and commons paradigms because of 1) new value capture systems enabled by the underlying technology and 2) the presence of a community willing to experiment and dedicate resources to improving societal good.

In the past, public goods have created enormous value but haven’t had a value-capture method to be self-sustaining. When viewed from the lens of Web3 ecosystems, mechanisms such as tokenization and protocol design can both define new value capture pathways and ensure optimal allocation of value captured towards public goods and commons.

The focus on community, collective intelligence, and resilience in web3 has led to development of new community resource allocation mechanisms such as quadratic voting, retroactive public goods funding and impact markets. Beyond this, a willingness to rapidly experiment and collaborate in a transparent environment can accelerate the development of mechanisms needed to scale public goods and commons funding.

Web3 is a great testing ground with structures that allow for new economic models to develop rapidly and at scale. Models that are closer to self-assembly are now possible, where decentralized planning and coordination brings together the mechanisms, experts, and funding that are necessary to sustain both public and common goods. In time, they could become a boon to open source development as well as research and science, and quickly scale beyond Web3 to broader society.

Protocol Labs is focused on researching and developing better tools for collaboration and public goods and commons funding. If you’re interested in being a part of this, be sure to join the community for the first in-person Funding the Commons event at the New York Historical Society on June 24-25. Registrations are open. To learn more about Funding the Commons, you can watch recordings from past events.