Earlier Version Presented to EEA Law & Econ. Workshop, NYC, Feb 28, 2009
James Stodder, (Ph.D., Economics, Yale 1990)
Lally School of Management & Technology
Rensselaer Polytechnic Institute at Hartford
Hartford, Connecticut, USA
“The Nature of the Firm,” Economica, 1937
- Firms exist to minimize “transaction costs”
“The Problem of Social Cost,”
Journal of Law and Economics, 1960
- Property Rights evolve to allocate property when transaction costs are too high
The Common Law is “an attempt to increase the value of the resource by assigning property rights to those parties … in whose hands the rights are most valuable.”
- Richard Posner, The Economic Analysis of the Law, 1972
Without flexible property rights, “the only way we thought we could test out the value of the pollution was by the only liability law we thought we had.”
- Guido Calabresi and Douglas Melamed, “Property
Rules, Liability Rules, and Inalienability”, Harvard Law Review, 1992
Now we have “Coase’s Penguin, or Linux and
The Nature of the Firm” by Yochai Benkler (Harvard) http://www.yalelawjournal.org/the-yale-law-journal/article/coase%27spenguin,-or,-linux-and-the-nature-of-the-firm/
Copyright Creative Commons Public Domain http://creativecommons.org/
Table 1: Ideal Organizational Forms as a
Function of Transaction and System Costs
SYSTEM COSTS (from
> Coordination or Peering
> Peering or Market Exchange
> Market Exchange or Coordination
INCENTIVE GAINS for Private Property >
IMPLEMENTATION COSTS for Private Property >
(Stock, Commodity, Books) (Roads, Police, Ideas)
Firms Club Goods
(Automobiles; Shoes) (Swiss Pastures, Schools)
Private ‘ open source ’ Peer Production
(Google, Faculty) (Clickworkers, Wikis)
Information Problems in
Pervasively Networked Environments (PNEs):
1. Accounting – Multiplicity of information, many kinds and sources.
2. Cooperation / Coordination – ‘Publicness’ of Consumption and Production. Important externalities (+/-) are public (Coase).
3. Complexity – Fundamental Non-Convexity of Negative Externalities (Starrett).
Table 2: Ideal Forms as function of Major
Informational and Organizational Problems
> Cooperation or
> Non-Convexity or
> Accounting or
INCENTIVIZE COORDINATE COOPERATE
Money, Power, Status,
Power Money Money
( Clickworkers ,
• Agriculture => Manor, Plantation
• Industry => Family Firm, Corporation
• Research => Scientific Circles, Universities, Firms
• New Forms of IP
The Economist, “The Next Society,” November 2001
“ As the flow of water is determined by the earth , so the victory of military force is determined by the opponent.
Military force has no constant formation, as water has no constant shape.
To gain victory by changing and adapting to the opponent is called genius.
- Sun-Tzu, The Art of War, 500 B.C.
“… the great uncertainty of all data in war is a peculiar difficulty, because all action must …be planned in a mere twilight, which … like the effect of a fog or
moonshine — gives to things exaggerated dimensions and an unnatural appearance. What this feeble light leaves indistinct to the sight, talent must discover , or must be left to chance.”
- Von Clausewitz, On War, 1874