James Stodder, (Ph.D., Economics, Yale 1990)
Lally School of Management & Technology
Rensselaer Polytechnic Institute at Hartford
Hartford, Connecticut, USA
1
“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
2
Smoke: 0.0 0.5 1.0 1.5 2.0 2.5 3.0
Total
Value to B
0
Marginal
Value to B
Total Value
to N
Marginal
Value to N
30
30
35
50
20
30
5
60
10
20
10
0
20
Ronald Coase, Journal of Law & Economics, “The Problem of Social Cost” (1960)
3
4
Smoke
0
TotalVal-B
0
MargVal-B
TotalVal_N
MargDam-N
0.5
1
1.5
30
30
80
2.5
50
20
30
50
2
60
10
20
10
3
0
20
5
6
Non-Convexity & Reversibility
Less Cost: Sender of +X Damage: Receiver of +X
Benefit: Receiver of -X Cost: Sender of -X
Benefit: Receiver of +X Cost: Sender of +X
Less Cost: Sender of -X Damage: Receiver of -X
7
In this case, if Transactions Costs High – better to
give Property Right to Sender than to Receiver
8
Total , not just Marginal Conditions
9
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
10
• Firefox
• Linux
• Google
• EBay
• Apple
• Wikipedia
• Apache WebServer
• MIT Open CourseWare
• Amazon
• MySQL (Sun)
• Travelocity
11
“Coase’s Penguin, or,
Linux and The Nature of the Firm”
by Yochai Benkler
12
• Agriculture => Manor, Plantation
• Feudalism
• Industry => Family Firm, Corporation
• Capitalism
• Research => Scientific Circles, Universities, Firms
• New System?
The Economist, “The Next Society,” November 2001
13
The Economist, March 8, 2008: “America's patent system: Methods and madness”
14
Externalities
are MultiDimensional
My Firm
+ 0.75
+ 1.00
+ 0.75
+ 0.50
+ 0.50
+ 0.25
+ 0.25
+ 0.00
+ 0.00
- 0.25
- 0.25
- 0.50
- 0.50
- 0.75
- 0.75
- 1.00
'Pinwheel'
15
• US v. Europe
• Google v. Yahoo
• Linux v. Microsoft
• Apple v. Microsoft
• Guerilla Bands v. Centralized Army
16
“As the flow of water is determined by the earth, so the victory of
military force is determined by the opponent. … To gain victory by
changing and adapting to the opponent is called genius. Therefore
the consummation of forming … is to arrive at formlessness. When
you have no form, undercover espionage cannot find out anything,
intelligence cannot form a strategy.”- Sun-Tzu, The Art of War, 500 BCE
“… 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…”
- Von Clausewitz, On War, 1874
17