In a recent thread, Matt and I debated at some length the applicability of Economy App to an economic subsystem like Edgeryders. Edgeryders works by patching along (that is, matching skillset with task) three main kinds of commodities: in-kind donations (people donating effort to other people’s projects); outright hired labour (people selling effort to other people’s projects); and in-kind investments (people investing effort in other people’s projects, with compensation to come when and if such projects take off.
In order to make this work, Matt and the EA crowd have dreamed up a number of hacks. You can hire someone on EA by offering money as money and requesting effort; donate by offering effort and requesting “thank you vouchers”; invest by offering effort and requesting contingent money vouchers, that take value zero if the project does not take off and some positive value if it does.
To an economist, this way of reasoning is heavily reminescent of general equilibrium theory. Mathematical economists have been investigating under which conditions you can reach a market-clearing equilibrium for all goods and services at once ever since the 19th century. As they did so, they quickly found out that they needed to differentiate goods not only according to their physical nature (you can’t exchange apples and oranges in the same market, unless you use one as the numerary for the other), but also according to:
- space: skiing gear in the Swiss Alps has more value than a Caribbean island.
- time: an umbrella has more value on a rainy day than on a sunny one.
- contingency: a ton of wheat next year will have more value if crops are scarce than if they are abundant.
The contingency provision is of particular significance because it invokes probabilistic math into the picture. Arrow-Debreu-McKenzie needed it to derive their equilibrium theorems. I would also add
- identity: I would be happy to work for the Electronic Frontier Foundation, but not for the Climate Change Denial alliance, even if salary and working conditions are identical.
Now, all of these things pose problems to EA just as to any market-clearing system. On the one hand they make clearing at all possible: no one wants to be forced into an exchange system that does not take into account all of these things, and does not give parties full control on what they exchange for what. On the other hand, they constrain the algorithm and therefore make it more difficult to close deals.
Now, in principle EA solves it all through the expedient of the numerary. Through a number of interesting hacks, most of these can probably work in the context of Edgeryders. But a numerary does not clear markets per se: what clears markets is that prices can adjust to equlibrium (and that an equilibrium even exists). Two items can be similar and have identical price, but not be identical: for example, bicycle A is more lightweight but I like the gear in bicycle B better. Or I want somebody to write blog posts for me, but I think Alice is a better match for what I have in mind than Bob. What mechanism do you have in mind for letting me accept a deal that implies Alice-the-blogger, while rejecting a very similar (but, to me, different) deal that implies Bob-the-blogger?