'If I had a hedge fund, I would cure diabetes': endogenous mechanisms for creating public goods

We consider the problem of organizing capital to produce public goods with broad societal value. We review why market corrections via government subsidies or philanthropic initiatives are inadequate, in addition to considering the paradox of patents. Our proposed mechanism (an Ever-growing Prize and a Patent Repository) directs capital towards two innovation problems routinely overlooked: (1) problems for which the reward is insufficient even with established mechanisms (e.g. patents or academic prestige), and (2) problems for which the reward is large, but the effort risk is incalculable. The proposed hedge fund mechanism facilitates crowdsourcing, addressing the challenge of determining problems with broad societal interest; the ever-growing prize allows for an emergent rather than predetermined reward; the patent repository turns private intellectual property into a public good for target problems while circumventing the inventors’ threat of patent expiration. We guide this discussion by considering two problems: treating Cystic Fibrosis and curing Diabetes.