Dominant assurance contract is a proposed solution to free rider problem in crowdfunding. It pays more money to payers (for example 105%) in case of failure of campaign. Is it make paying a dominant strategy? I think not.
Suppose a city need a road that make 100\$ benefit for each person. It costs 8000\$ and entrepreneur offers 5\$ in case of failure for every 80\$.
- normal strategy (paying 80\$):
- in case of failure: 5\$ benefit
- in case of success: 20\$ benefit
- free rider strategy:
- in case of failure: 0\$ benefit
- in case of success: 100\$ benefit
That shows a free rider can risk on the success probability (that helping does not affect it so much) and make a higher profit. Where I am wrong? Is there any additional hypothesis that dominant assurance need to work?