1. The view from the commons What we should and shouldn’t take seriously from neoclassical economics, and what would further our understanding of ICT

2. 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

3. 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

4. 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

5. Why economics matters 3. Some vocabulary and tools we might benefit from

6. 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

7. 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

8. 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”

9. 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

10. 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

11. What ICT studies need from economics Networks Scale and scope Exchange and communication Information, quality and value Innovation and productivity Growth theory

12. 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”

13. 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

14. 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

15. 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

16. Innovation as a feature of systems Innovation is usually seen as a product of systems Moore’s “law” is misleading, at best!

17. The economic significance of the replication of institutions What this means in relation to stability (and innovation--as vis standards) Significance for growth theory

18. The division of labour that makes sense as a feature of innovation The productivity debates, and especially Jorgenson’s proposals.

19. How management issues might be understood From firm level to “firm level” to aggregate econometric study of firms

20. Where we can get it from Institutional economics Evolutionary economics Nelson Winter Mowery Economic sociology Neil Fligstein Harrison White Richard Swedberg

21. 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

22. Where “we” challenge “them” Network “externalities” Scale and scope (and virtuality) Infrastructure as layered relations among information and its utilisation (including transport)

23. 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

24. 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

25. 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

26. Applications to ICT Pricing Regulation Strategy

27. 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

28. 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

29. 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

30. 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

31. 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)

32. 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

33. 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

34. 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

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