Assurance Contract: A Definition
An assurance contract is a pledge that only executes once enough other people make the same pledge, so no one participant bears the funding risk alone.
An assurance contract is an agreement where a pledge only executes once a minimum number of other people make the identical pledge. Below that number, nobody pays and nothing happens; at or above it, every pledge activates at once.
Economists Michael Bagnoli and Barton Lipman formalized the general case in 1989: each funder promises money toward a shared good on condition that total pledges clear a stated minimum, which lets a stranger commit without risking money on a good that never materializes. Alex Tabarrok’s 1998 paper in Public Choice, “The Private Provision of Public Goods via Dominant Assurance Contracts,” went further by adding a refund bonus — contributors get their money back plus a small payment if the minimum isn’t met — turning pledging into a dominant strategy instead of a bet on strangers. The informal name for the underlying puzzle, a street performer who won’t play until enough coins are already promised in the hat, predates the math and still explains it better.
Kickstarter runs this at scale. Card details are collected, but no charge posts unless total pledges clear the stated goal by the deadline. That goal isn’t friction bolted onto crowdfunding — it’s the reason a stranger will fund a product that doesn’t exist yet. It doesn’t guarantee the product ships once pledges clear; that risk is a separate problem the contract was never built to solve.
This is a different category from a plan one person locks in to bind their own future behavior, or from older, non-software examples of that same solo move — those bind exactly one person regardless of anyone else’s choices. An assurance contract binds nobody until the group reaches its number. (A social-accountability app that publishes proof to friends, like DontSnooze, sits in the solo category: one person’s pledge doesn’t wait on anyone else’s.)