Output Markets

Photo by Shirly Niv Marton on Unsplash

It sounds ridiculous but doing the right thing often feels like a net cost, rather than a net benefit:

  • It can be a bit of a hassle to sort your garbage; whereas it is pretty easy to dump everything in one bucket;
  • Investing in a solar system for your house costs quite a bit of money and work;
  • It is a bit of a hassle to go to the hospital and do a checkup versus, say, stay at home and play Fortnight;

It gets worse:

This is why incentives work.

Incentives provide an immediate benefit. They sweeten the hassle vs. benefit equation and nudge towards doing the right thing.

More or less sophisticated versions of incentive schemes exist everywhere from China to Switzerland to Brazil and everywhere in-between. Incentives work in facilitating innovation and entrepreneurship, they work in supporting commerce, social schemes and even user acquisition for fast-growing products.

Incentives don’t scale

But incentives are hard to roll out at scale. People need to sign up to some sort of platform. There is often an arcane application process. Sometime fall between qualification criteria. There is some sort of certification process. When it does come, the money takes time. Corruption and abuse are not unheard of .

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These challenges multiply exponentially as we move further towards low income, low infrastructure environments. Yet, there is where the highest impact returns could happen.

Output markets

Incentive schemes are typically built around people and soon enough, things get complicated. Rent-seeking. Corruption. Gate-keeping. Hoops to jump through. Some people will invariably be better than others at working the system.

But what if we think away from people and focus on events themselves. The thing that we want people to do:

  1. Define what it is that we want to happen (try to make this an output, not an input);
  2. Put a price on that thing;
  3. Define the proof standards;
  4. Pay the agreed price to ANYONE who satisfies the proof standard, ideally automated.

How may that look in practice?

Let’s look at an example from the health sector. Health care providers – particularly in the private sector – often benefit from prescribing certain medicines or referring patients for specialized & expensive tests. They maximize their profits through back-handers from pharma companies or referral bonuses from laboratories, or straight up through billing for unnecessary treatment. Horror stories abound of patients shuffling about from doctor to lab to pharmacies and back to doctors, months on end.

Could we reverse this by putting a fixed price on the proof that any patient has been cured ?

As proof we’d need only 3 data-points:

  • A positive lab test associated with an (anonymized) ID of the patient – this can easily be done with some sort of biometric tech/ smart device appended to a lab instrument;
  • A subsequent negative lab test, associated with an anonymized ID of the patient;
  • A check that the patient ID is the same;

That’s it. Upon verifying these three data-points, any provider – from the local village medicine man all the way to the owner of the largest medical franchise in the country – will receive the same agreed price. This might change the economics of actually treating patients and lead to a higher treatment rate.

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The Patient’s ID is unique (and Anonymized) so no treatment can be submitted twice. Sure, people will try to game the system (and at times they will succeed) but progress in tech will make this increasingly difficult.

This can be done across sectors. A price can be put on KW of clean energy. Or on square meter of healthy forest. Or on any girl that graduates high-school. The community can spend the incentives as they see fit to maximize further returns. There is no application process, no proposal to be submitted, no gatekeeper to please.

Proof leads to payment and more events lead to more money.

Follow the Money

But where will the money come from to fund such schemes? Well I for one would be quite happy to contribute a few dollars a month in exchange for proof that a certain surface of Brazilian rainforest is thriving. There are millions like me. Donors and governments are currently spending enormous amounts trying to fund and implement top-down projects related to health, renewable energy or education. Impact investors the world over are keen to invest in businesses that have a proven positive impact. All this together could create a nice supply of capital for such output markets.

Now imagine these outputs would be listed on a global market. A global interest in a specific output (TB treatment or renewable energy) could drive the price up for such events, which will lead to an increased regard/ incentive for people in the respective communities to deliver and verify given outputs.

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