The view from the commons

What we should and shouldn’t take seriously from neoclassical economics,

and what would further our understanding of ICT

A loose structure Why economics matters and what I

would like it to be about Why it isn’t as useful to ICT studies as it

could be Which insights from ICT challenge

economics How to think about the economics of

ICT

Why economics matters

1. 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

Why economics matters

2. 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

Why economics matters

3. Some vocabulary and tools we might benefit from

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

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

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”

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

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

What ICT studies need from economics

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

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”

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

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

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

Innovation as a feature of systems

Innovation is usually seen as a product of systems

Moore’s “law” is misleading, at best!

The economic significance of the replication of institutions What this means in relation to stability

(and innovation--as vis standards) Significance for growth theory

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

The productivity debates, and especially Jorgenson’s proposals.

How management issues might be understood From firm level to “firm level” to

aggregate econometric study of firms

Where we can get it from Institutional economics Evolutionary economics

Nelson Winter Mowery

Economic sociology Neil Fligstein Harrison White Richard Swedberg

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

Where “we” challenge “them”

Network “externalities” Scale and scope (and virtuality) Infrastructure as layered relations

among information and its utilisation (including transport)

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

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

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

Applications to ICT Pricing Regulation Strategy

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

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

Innovation and intermediate markets

Competitive entry is based on innovation Vertical integration constrains entry

At great cost to innovation & efficiencyFor both the firm and society

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

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)

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

The regulator and the “managed commons” Formulate the problem in terms of the “commons”

characteristics of the lowest layers of broadband Don’t 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

The way forward & policy implications

Promote information to achieve efficient layer-level investment In particular for lower layers

“Managing” the commons a regulatory raison d’être 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

end