Quadratic Funding (QF) is a precise formula for allocating a central matching fund optimally and democratically.
Matching funds are widely used by communities to make better decisions about how to collectively fund their common resources, which are often called public goods. Traditional matching schemes promise to match individual contributions at a certain rate, such as 1:1, and up to a certain amount, such as $100.
Although their constraints are arbitrary, matching funds help address two problems. First, central funders like political institutions and philanthropists suffer from an “information” problem, in that they do not know how much to support a certain good. Matching funds allow them to harness decentralized information from the community about what should be funded. Second, individuals, often a small part of a large group, have incentives to “free ride” and contribute less than is optimal to a public good. Matching funds offer small voices an incentive to contribute as much as large voices who usually dominate these decisions.
QF builds off this democratic character by proposing a systematic, optimal mechanism for matching funds. Smaller contributions receive larger matches. Contributions to widely-beneficial resources, those with many other contributions already, receive larger matches. And small minorities still benefit from smaller matches.
This new approach to political economy bridges the usual divide between the economy and politics, bringing political values of equality and cooperation into the economy, and agency and flexible choice into political life. With QF our commitments to different issues and communities can shift more gradually, rather than a sharp binary between voice and exit.
