flattr as an open-source financing solution
R-bloggers 2013-04-07
Summary:
Dear readers, many of you are probably wondering what the flattr button is that has appeared on my blog. This button is for a new organization which encourages the donation from users. One of my old friends working for flattr has asked me to write something about the economics of flattr and I have struggled with what to say for a few months now. When I talk to him he uses phrases like “social entrepreneurship”, “longtailed crowdfunding”, and “non-capitalism” etc. which have no meaning for me and overall leave me somewhat puzzled as to how to how to analyze the model from a classical economic toolbox perspective. That said, I think I have some reasonable arguments for why flattr is a great idea. In addition the word “flattr” (pronounced flatter) would not be my first choice for the name of the service since I have strong negative feelings associated with “flattery”, the act of self-ingratiatingly praising someone in order to earn favor with that person. Interestingly the service flattr is actually the opposite by providing a mechanism for individuals to sponsor projects without receiving any personalized favors from the recipient. Well I am getting a little ahead of myself. First off let’s look at what flattr does. From superficial description flattr could be easily confused with many traditional forms of non-centralized donation based fundraising operations. However, flattr rather than asking for money asks for “flattrs” which are used to distribute funds in a monthly payment system. Thus the flattrer is paying a fixed amount monthly which is redistributed evenly throughout the recipients of the flattrs. 
In this case you choose a and n, a being the amount you give monthly and n being the number of projects that you give to. gamma is the reasonable fixed value of .1 which flattr takes as commission for providing the service. Thus if you choose to give $10 a month and choose four flattr “things” which is a general term meant to include anything from software developments, music productions, to blogs. Thus you would be effectively giving $9/4 which is $2.25 to each of your "things", from now on I will call them projects.
For the individual:
From an individual perspective I think this choice pattern could be optimal for a number of reasons. For one it reduces transaction costs. It reduces the time involved in making many small or large donations which might involve inputting credit card information and unpleasant follow ups by organizations. This transaction cost I believe can be quite burdensome. Imagine if you would like to sponsor 100 organizations with a total of $200 over a year. Using traditional methods assuming it takes 10 minutes to sponsor each organization we are talking about 33 hours spent just trying to pay the organizations. Additionally, organizations might not find it worth the time to handle such small transactions. Flattr make these kinds of transactions very possible and efficient.
Flattr circumvents that Kantian Categorical Imperative logic which argues, “if you are giving to this person or organization why aren’t you giving to all organizations?” This question leads you naturally to a scenario where you would be giving too much money to be fiscally sound or the size of the donations are so small as to make transaction costs larger than the payments. However, using flattr, there is no penalty for increasing the number of projects you are giving to which can be independently modified without changing the amount you are giving.
As an alternative to advertisements:
For media production organizations Flattr provides an alternative to advertisements. I know some economists argue that advertisements provide signaling information to consumers about the quality of their product and that information has some value to the consumer. I think there is some validity in this argument however I believe the cost of providing advertisement information to the consumer in almost all scenarios vastly outweighs the marginal benefit of that information to consumers. Also, that quality is not always signaled but rather other primal impulses are triggered such greed, lust, and gluttony which do not enrich the human experience in general. In addition, the direct amount of time and energy that advertisements absorb is huge and costly. For an obvious example, when watching tv, about 1/3 of time spent is watching commercials. Yet the benefit to the television station for you using up 20 minutes for each hour of your time watching junk advert