Option Fund Market Dynamics for Threshold Public Goods

Economic agents have the possibility to fund the protection of environmental public goods, such as natural ecosystems and biodiversity, facing unknown risks of collapse, which could help to back them up. On the base of the prediction markets, which meet with a degree of success since their introduction, we propose an evolutionary model of an option fund market for the threshold environmental public goods. We consider population dynamics of agents distributed into proportional fair-share contributors and free riders. The model outcomes show that the public goods could be provided when the agents exchanging option contracts are equally divided into buyers and sellers. This result only holds for a specific social belief over the probability of the public good safeguard, the strict equality between bids and asks, and the equality of all payoffs. Otherwise, providing public goods through option markets turns out to be inoperative.