The view from the commons

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The view from the commons

• What we should and shouldnt take seriously from
  neoclassical economics, and what would further
  our understanding of ICT

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A loose structure

• Why economics matters and what I would like it to
  be about
• Why it isnt as useful to ICT studies as it could
  be
• Which insights from ICT challenge economics
• How to think about the economics of ICT

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Why economics matters1. Economists have influence

• Business models and therefore corporate strategy,
  investor behaviour, employment practices, etc
• Law and policy vis. e.g. property rights,
  competition, etc
• Regulation, standardization, etc

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Why economics matters2. Respect in academic
circles and not just locally

• They are a big and powerful academic community
• Economists ideas and techniques are widely
  disseminated and discussed
• Neighboring disciplines are amenable, including
  law, political science, sociology and management

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Why economics matters3. Some vocabulary and
tools we might benefit from
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Economics is conventionally about production,
distribution consumption

• Economics is the study of how men and society
  end up choosing, with or without the use of
  money, how to employ scarce productive resources
  which could have alternative uses, to produce
  various commodities and distribute them for
  consumption, now or in the future, among various
  people and groups in society.
• Samuelson, 1970, p. 4

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Information

• Price is the only market indicator necessary for
  most economists
• Asymmetric information and market equilibrium
  problems (Akerlof)
• Problems of imperfect information and dynamic
  responses

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ICT and productivity growth

• Dale Jorgenson
• IT and the Am. Growth Resurgence MIT 2005
• Paul David
• Endogenous growth and GPT
• Paul Romer
• Increasing returns long-run growth
• Robert Solow
• With Kuznits most unexplained growth from a
  residual--technical change
• An originator of the productivity paradox

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What economics should be about

• Exchange
• Including preferences, property, markets and
  their structure and mechanisms of governance
• Innovation
• Fundamentally dynamic processes largely
  endogenous to firms, as is their technology
• Work
• Including the division of labour, structure of
  firms and industries, productivity
• Value
• Not exclusively price

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A history of (but not a tradition for) more
amenable forms of explanation

• Marshall, Young and the trajectory before the
  articulation of neo-classicism
• Penrose on the firm
• Stigler on the division of labour
• Coase on transactions
• Arrow on information
• March on institutions

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What ICT studies need from economics

• Networks
• Scale and scope
• Exchange and communication
• Information, quality and value
• Innovation and productivity
• Growth theory

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Dynamic systems within which technology is
endogenous

• We need to know better what is endogenous and
  what is not
• We need a better way of dealing with exogenous
  factors other than to put them in black boxes

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To describe the exchange relations within
different kinds of networks

• Network forms and behaviours are not identical
  and the means of exchange within them need to be
  comparable

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Scale and scope of networks

• Scale is not an obvious concept (and never has
  been for engineers)
• Scope is also non-trivial and is fundamentally a
  managerial issue

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Understanding of infrastructure

• Hanseth gives us a start, but he neither goes far
  enough nor allows for much use of economic
  concepts
• We need to know more about the relationships
  among layers of infrastructure

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Innovation as a feature of systems

• Innovation is usually seen as a product of
  systems
• Moores law is misleading, at best!

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The economic significance of the replication of
institutions

• What this means in relation to stability (and
  innovation--as vis standards)
• Significance for growth theory

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The division of labour that makes sense as a
feature of innovation

• The productivity debates, and especially
  Jorgensons proposals.

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How management issues might be understood

• From firm level to firm level to aggregate
  econometric study of firms

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Where we can get it from

• Institutional economics
• Evolutionary economics
• Nelson
• Winter
• Mowery
• Economic sociology
• Neil Fligstein
• Harrison White
• Richard Swedberg

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Where we can get it from (2)

• Game theory, evolutionary and behavioral game
  theory, etc. (Greif, Dixit, etc.)
• Ostrum on common pool resources
• Bowles on economic institutions
• Yang on new classical economics

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Where we challenge them

• Network externalities
• Scale and scope (and virtuality)
• Infrastructure as layered relations among
  information and its utilisation (including
  transport)

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Good ways to think about the economics of ICT

• Exchange regimes and the commons
• A means to understand rivalrus and excludable
  characteristics of a wider range of property
  rights
• How transformations take place dynamically from
  one form of exchange to another
• Means to improve governance

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Goals in this analysis include

• Redefining property rights across a wider range
  of ownership and use categories
• Articulating the most important characteristics
  of governance
• Incorporating an understanding of dynamic
  capabilities to operationalize rights

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Goals (2)

• Dealing coherently with transformations from one
  form to another, as with the "marketizing" or
  "liberalizing" of monopolies or state controlled
  property rights--and indeed the other way around
  when property rights are taken out of markets and
  brought under state control or monopolized

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Applications to ICT

• Pricing
• Regulation
• Strategy

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Problem of vertical integration

• Efficient vertical integration essential to
  investment
• Benefits from scale scope are currently
  restricted
• Vertical integration within ill-formed markets
  fails to provide information on layer-level
  investment
• How to know layer-level costs
• Merely accounting costs can be provided
• Engineering data restricted to given market
  structure
• Without intermediate markets, economic costs
  mislead
• Therefore no efficient investment level can be
  known

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Activities

• Stigler (1952) why firms do not evolve into
  monopolies (division of labor extent of market)
• Firms are aggregations of activities, each with
  their own scale scope characteristics
• Market characteristics emerge from the
  disintegration of the firm
• Telecoms have been artificially preserved from
  these forces

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Innovation and intermediate markets

• Competitive entry is based on innovation
• Vertical integration constrains entry
• At great cost to innovation efficiency
• For both the firm and society

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Theories of markets, governance and the commons

• From Hardin to Coase
• Commons always suffer from the free-rider problem
  (Hardin 1968)
• Governance matters (Coase 1960)
• Commons imply neither efficiency nor
  optimization, but many do work

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Markets are subsets of the commons

• We define commons to include all economic
  exchange, whether market-based, based upon
  central-planning allocations, or other
  arrangements that could be government and/or
  community based (vis common pool resources
  Ostrom Bowles)

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The pricing problem

• No way to create an efficient market for
  rights-of-way or for poles, ducts conduits,
  perhaps even for fiber
• Impossibility of optimal pricing because of the
  lack of benchmarks
• All investments above lower levels are distorted
  by this pricing problem

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The regulator and the managed commons

• Formulate the problem in terms of the commons
  characteristics of the lowest layers of broadband
• Dont search for optimal pricing solutions,
  search for governance
• Better governance involves institutional change
  and new market relations
• Efficiency of investment in broadband is directly
  related to the efficiency of investment at all
  levels

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The way forward policy implications

• Promote information to achieve efficient
  layer-level investment
• In particular for lower layers
• Managing the commons a regulatory raison dêtre
• Rethink allocation mechanisms to consider
  localization features and the diversity of
  property rights
• Treat lower layers within the commons framework,
  e.g.
• Forbidding municipal conduits is inefficient
• Conduit space in streets might be conceptualized
  as vis. fisheries management

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