Tuesday, March 03, 2009

Bringing in some economic analysis

In my posts I will address issues pertaining to the economics of information and information technologies. In particular, I will argue that a theory of law and technology needs to account for economic phenomena, and that it needs to do so in a conscious, purposeful and critical manner.

In an earlier posting (February 5th), Peter Yu discusses the general theory of law of technology, which he argues should be about a triangular relationship between law, technology and society. I agree with this general formulation and the need to view these three components as being interdependent, avoiding either a technological determinist account or the formalist positivist view of law as an internal system unto itself. But I worry that not enough attention is given to economic issues, which I believe a crucial component of a full understanding of the relations between law, technology and various social phenomena broadly construed. At the outset, I should disclaim any interest in adopting a law and economics approach to the problem; it is not my intention to substitute economics for technology as a key determinate. I just want to make sure that choices concerning questions of economic policy, indeed some very basic threshold questions about economic policy, are not lost under the broader guise of “law”, “technology” or “society”.

In his February 2nd posting, Art Cockfield reminds us of two differing views on the relationship between human autonomy and technology, the instrumentalist and substantive schools of thought. He contrasts these two competing theories and points to how they may influence legal analysis. I will do something similar with respect to what I see as two competing theories of economic analysis, which for simplicity I will refer to as mainstream positive economics and critical political economy. While Art goes on to propose a synthesis of the two philosophical perspectives he identifies, I will argue that these two ways of thinking about economics are less susceptible to reconciliation and have inherent tensions that are often played out in the information policy making process that results in intellectual property and related laws.

My goal in these posts is not necessarily to convince anyone that one of these two disparate world-views is better than the other, or some potential mixture; but rather of the need to take economic issues into account when thinking about the parameters of a theory of law and technology. Having said that, I should indicate that in my work I rely heavily on an economic approach grounded in radical political economy, and I use this to approach inform my critique of expansionist intellectual property policies and other policies that tend to reduce intellectual goods (data, information, knowledge) and intellectual and communication technologies to commodities without regard to their public goods qualities.

In the remainder of this first post, I will briefly review the contours of these two competing theories and their underlying assumptions. In the next post, I will argue that any theory of law and technology, or law, technology and society needs to consciously take account of economic issues in a purposeful manner that explicitly recognizes the contention between these schools of thought.

Mainstream positive economics starts with the assumption that the free market system, as it operates through a price mechanism is the ideal allocation mechanism to govern the production, dissemination and use of intellectual goods and information technologies. It is thought that such goods will be under-produced without a guarantee of sufficient market-based financial incentives to creators, inventors, owners and distributors. A related assumption then is that an expansion of property rights are necessary in order to protect these market-based interests from being under-produced or undermined by acts of appropriation, especially in an era of easy reproduction. In contrast, one might reject this market based system of allocation in favor of an approach rooted in the tradition of critical political economy.

With political economy, which has historically stood at the intersection of politics, social theory and economics, a society’s prevailing reward structure and economic institutions and models are not taken as a pre-determined given. Rather they are constantly subjected to evaluation and re-evaluation especially under conditions of change. Taking a broad historical approach, it becomes evident that societies can, and often do, change their economic institutions and the manner in which they operate in response to new arguments. With respect to a theory of law and technology, it is also evident that economic analysis has played an important role in informing copyright, patent and related policies and these utilitarian theories are often rooted in the search for the optimal trade-off, or balancing, of the various interests of creators, rights holders and users. Central to this utility-maximizing is the presumed need to provide direct economic incentives to create intellectual goods, be they works of expression or works of invention.

One recurring criticism of the efficiency-centric, cost-benefit analysis mode of thinking is that certain gains and losses are not as susceptible to precise quantitative measurement as are others. So in the area of intellectual property, it is often argued that losses to the general public interest resulting from over-protection are not as easy to identify and measure as those concrete financial benefits accruing to the rights holders, and that this disparity creates a built-in bias in the policy process in favor of over-protection of intellectual assets. It can also act to marginalize other policy options which are not rooted in proprietary mechanisms.

Proponents of an approach rooted in critical political economy would argue that a deeper analysis is needed than what can be provided by models tied to market efficiency assumptions. Within the critical perspective, the “public goods” quality of information (it tends to be non-rival in consumption and not inherently subject to an exclusion mechanism) is seen as a good thing that presents society with many potential social benefits. But within the logic of the market, the public goods nature of information is view as a market failure “problem” that needs to be “cured” so that the price mechanism can properly operate. These cures take on various forms designed to induce scarcity, promote rivalry in consumption, or employ new exclusion mechanisms.

Getting back to the triangular relationship between law, technology and society, I’m not sure where to place the consideration of economic issues. Perhaps it is a subset of the “society” prong, or perhaps it is embedded in the “technology” or perhaps even with the “law.” I am clear though, that economic issues need to be considered somewhere in this mix, and such difficult economic issues need to be considered in an explicit manner. Failing such explicit treatment, the underlying assumptions of one of the models continues to go unchallenged, and its values and suppositions are absorbed into the policy process even if only implicitly.

In my next post, I’ll provide some examples and attempt to flush these arguments out in a bit more detail.


Blogger Lyria Bennett Moses said...

It strikes me that the answer to your question depends on what you mean by economics. If economics means "the economy", then it is clearly in the society bracket. If it means economic policy, then perhaps it is a technology (within that term's broader meaning).

3/03/2009 10:41 PM  
Blogger Gaia Bernstein said...

I agree that economics needs to be part of the analysis. I think that although economists have written about the diffusion process of new technologies, these writings have not been incorporated into legal scholarship. At the same time, paradoxically, often when I write about the need to consider the social adoption of new technologies (the "society" prong), I am asked, "Isn't this just about the commercialization process?" I think it would be important to clearly define a framework, which would clarify that both the social components (such as value destabilization) and economics aspects are fair game for legal regulation.

3/04/2009 4:53 AM  
Blogger Art said...

An interesting avenue for research for political economists will be to look at the bail-out laws and stimulus packages in Canada and elsewhere to try to understand how law influences the production and distribution of technology. In Canada, we are bailing out the auto industry to the tune of billions of dollars, but we also recently let tech giant Nortel go belly up without even a shrug.

Nortel previously employed something like one quarter of all the engineers in Canada so the loss of employment to our tech sector is staggering. Why autos and not high tech? Does this make any sense?

3/05/2009 10:02 AM  
Blogger Patrick S. O'Donnell said...

Sam (if I may),

Because I am fond of much in the Marxist and socialist traditions of economics (not too fashionable down here in the states) I was heartened to see your analytical commitment to "radical political economy," but I'm curious as to the sorts of folks *you* find representative of this genre, as it can vary quite a bit according to who one asks. Would you mind sharing with us some of the names of individuals in this field that you've found helpful in your own work?


3/06/2009 6:21 PM  
Anonymous Dale B. Halling said...

The “scarcity theory of property rights” is being advanced by a number of scholars at the Cato and Von Mises Institutes. Using this theory they suggest that there is no justification for intellectual property rights. The logical conclusion of their theory is intellectual labor is not deserving of pecuniary reward.

Are they correct that scarcity is the basis of property rights? See http://hallingblog.com/2009/06/22/scarcity-%e2%80%93-does-it-prove-intellectual-property-is-unjustified/

Is the conception of ideas and inventions subject to scarcity? See http://hallingblog.com/2009/06/25/scarcity-and-intellectual-property-empirical-evidence-for-inventions/

Is the distribution of ideas and invention (technology diffusion) subject to scarcity? See http://hallingblog.com/2009/06/25/scarcity-and-intellectual-property-empirical-evidence-of-adoptiondistribution-of-technology/

6/26/2009 6:28 PM  

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