Coherence between Institutions and Technologies Rolf Künneke PHD course De- and Re-regulation of Network Industries Delft, 20 th to 24 th April 2009

2 Overview Problem statement Infrastructures as complex socio-technical systems Conceptual framework The coherence between institutions and technology Case study Conclusions

3 Problem statement Liberalization of infrastructures is often perceived as a matter of institutional change only However, technology is an important enabling factor or even a barrier Hypothesis: The technical functioning of infrastructures needs to be supported by suitable institutional regimes in order to perform satisfactorily Problem statement: How to specify the interrelation between institutional and technological coordination and relate them to the (technical) performance of infrastructures?

4 Infrastructures as complex socio- technical systems Large scale systems Providing essential services to society Strong degree of complementarity, technical as well as institutional Interrelation between technology and social system Features: Lock in effects, path dependence, multiple equilibriums, persistent inefficiencies

5 How to relate technology to institutions? Large Technical Systems Hughes, T.P. (1987), 'The Evolution of Large Technological Systems', in: Bijker, W.E., Hughes, T.P., Pinch, T.J. (Eds.), The Social Construction of Technological Systems. New Directions in the Sociology and History of Technology, MIT Press, Cambridge (Mass) and London, pp Co-evolution between technology and institutions Nelson, R.R., Nelson, K. (2002), 'Technology, Institutions and Innovation Systems', Research Policy, 31, Von Tunzelmann, N. (2003), 'Historical Coevolution of Governance and Technology in the Industrial Revolutions', Structural Change and Economic Dynamics, 14, Nelson, R.R. (1994), 'The Co-evolution of Technology, Industrial Structure, and Supporting Institutions', Industrial and Corporate Change, 3, Transition theory Geels, F.W., Schot, J. (2007), 'Typology of Sociotechnical Transition Pathways', Research Policy, 36, Rotmans, J. (2003), 'Transitiemanagement: Sleutel naar een duurzame samenleving', Van Gorcum. Capacity utilization Nightingale, P., Brady, T., Davis, A., Hall, J. (2003), 'Capacity Utilization Revisited: Software, Control, and the Growth of Large Technical Systems', Industrial and Corporate Change, 12, Beniger, J.A. (1986), 'The Control Revolution. Technological and Economic Origins of the Information Society', Harvard University Press, Cambridge, Massachusetts.

6 Conceptual framework (1) Network features Traditional market failures: External effects, common pool resources, increasing returns, network effects Network characteristics: Complementarities Different network structures Governance Common pool resource problems Asset specificity Strategic behavior

7 Conceptual framework (2) Infrastructure performance Economic performance depends on network effects, free rider behavior, CPR problems

8 Conceptual framework (3) Public values: provision of essential services to society

9 Conceptual framework (4) Technical system integrity: Systems performs according to certain expected technical criteria

10 The coherence between institutions and technology

11 System relevant functions Interconnection: physical linkages of different networks that perform similar or complementary tasks Interoperability: mutual interactions between network elements are enabled in order to facilitate systems’ complementarity Capacity management: allocation of scarce network capacity to certain users or appliances Strategic, tactical or operational level System management: safeguarding of the quality of service

12 Technological and institutional governance (1) Different coordination mechanisms:

13 Technological and institutional governance (2) Technical and institutional scope of control We consider the scope of technical and institutional coordination as coherent if they are related to comparable system boundaries

14 Relation between coherence and performance Interrelatedness of the three performance criteria Possible trade-off? Static versus dynamic efficiency

15 Case study: Electricity sector (1)

16 Case study: Electricity sector (2) Künneke, R.W., Finger, M. (2007), 'Technology Matters: The Cases of the Liberalization of Electricity and Railways', Competition and Regulation in Network Industries, 8,

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20 Conclusion Dealing with the interrelation between technological and institutional coordination is fundament in the reform of infrastructures Consequences for infrastructure policy? Static approach. How to deal with dynamics?