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The Gridlock Economy
How many popular economics books offer a message which is (mostly) true, non-trivial, and understandable? Michael Heller's The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives satisfies that troika. The key message is that the "tragedy of the anti-commons" is often a bigger problem than the better-known tragedy of the commons. The tragedy of the anti-commons arises when too many veto rights are exercised. Here is one simple example:
Tarnation, a spunky documentary on growing up with a schizophrenic mother, originally cost $218 to make at home on the director's laptop. It required an additional $230,000 for music clearances before it could be distributed.
Or try tracking down orphaned copyrights or proceeding without explicit permission. Furthermore many new drugs are more costly to market, or end up not being marketed, because there are so many possible patent infringement issues. By the way about half of the patents litigated to judgment are not upheld. Too many interest groups have veto power over infrastructure development, such as wind power or a new oil refinery (my examples). The U.S. allocates its spectrum far less efficiently than either Japan or South Korea. Holdouts lower the rate of property redevelopment; I learned that The New York Times used eminent domain to build its new headquarters because otherwise assembling such a large parcel of land in midtown Manhattan was very difficult. It all boils down to the story of too many tolls on the medieval Rhine.
Yes, the author does give full credit to Buchanan and Yoon for their work on the anti-commons.
Heller does not cover the deeper question of whether a society can respect minority rights to the desired degree without encountering too strong a problem of the anti-commons. Most of us are for the right to appeal, for the right to a fair trial, for various courses of redress, for the right to sue, for basic rights of intellectual property, and so on. Some set of interest groups has to support those regimes. Can those interest groups be so empowered without the excesses outlined in this book? Would we still want to abolish the anti-commons problems if it led to a more general weakening of minority rights?
Posted by Tyler Cowen on July 6, 2008 at 06:55 AM in Books, Law | Permalink
Comments
Sell Italian bonds. Italian public debt has reached a record high at 1646,7 billion euros.It is worse than 1992 when the country went very near to declare default(insolvency)
Posted by: soft at Jul 6, 2008 7:26:52 AM
A quick search on SSRN and JSTOR indicates that the Buchanan and Heller papers are all gated (they had to be...). Does anyone have an ungated link? Thanks
Posted by: Stephane at Jul 6, 2008 7:33:34 AM
Well, no doubt it was less difficult for the NYT to accept the state's offer to take the buildings and hand them over, with millions of subsidies besides, than to actually ask the existing property-owners what it would take to get them out. But while nobody denies that the existence of a holdout problem, I think the NYT is a poor example of it.
http://www.reason.com/news/show/32227.html
Bruce Ratner, president of the real estate development company working with the Times on its proposed new Eighth Avenue headquarters, called the project a "very important testament to our values, culture and democratic ideals."
Those "values" and "democratic ideals" included using eminent domain to forcibly evict 55 businesses--including a trade school, a student housing unit, a Donna Karan outlet, and several mom-and-pop stores--against their will, under the legal cover of erasing "blight," in order to clear ground for a 52-story skyscraper. The Times and Ratner, who never bothered making an offer to the property owners, bought the Port Authority-adjacent property at a steep discount ($85 million) from a state agency that seized the 11 buildings on it; should legal settlements with the original tenants exceed that amount, taxpayers will have to make up the difference. On top of that gift, the city and state offered the Times $26 million in tax breaks for the project.
Posted by: DF at Jul 6, 2008 9:11:13 AM
This reminds me of Gregory Clark's argument in A Farewell to Alms, that many of the major innovators in the English industrial revolution were pretty much financially uncompensated. They did it for love not money (or maybe were status-seeking rather than cash-seeking.)
Clark seems to suggest that the drive to innovate does not come primarily from monetary incentives, but more from psychological and/ or cultural dispositions.
If so, then it may be that much of the structure of copyrights and patents and permissions may be irrelevant to _major_ breakthroughs; maybe instead serving to amplify minor, incremental progress by 'research and development' - and maybe, overall, they do considerably more harm than good to the creative process?
Posted by: BGC at Jul 6, 2008 9:14:03 AM
Loser pays (both sides expenses). The lack of this simple provision in law accounts for a large percentage of the problems mentioned.
We won't try to enforce our small "rights" all the time if there is a significant risk/cost to doing so.
Posted by: Tom Kelly at Jul 6, 2008 10:01:04 AM
(something ate my first comment)
I think Intellectual Property is an area where "small" rights were granted with unintended consequences. I think also that rational analysis for length of term has been lacking. I'd like authentic creative "works" to have strong protection ... for a single 50 year term. We should probably also winnow what constitutes a creative work, and on the patent side what constitutes an "innovation."
Privatization has also been carried a ways in areas like fisheries management. I think sometimes there "market" stalwarts have run ahead of the fishery biology. I mean, it's one thing to say that markets work for humans, it's another to hammer very dynamic and poorly understood fish populations to fit that mold.
Posted by: odograph at Jul 6, 2008 10:46:22 AM
Another place to look at the "tragedy of the anti-commons" is in co-ops (cooperatives).
Two co-ops (one a consumer co-op and the other a producer co-op, both with more than 1,000 members each) I was involved with eventually went under when they got bigger than a few hundred members and faced problems that the members coud not agree how to address.
Posted by: chug at Jul 6, 2008 10:56:03 AM
This sounds like a special case of a greater rule of systematic failure, which is that the atomism of continuous differentiation tends to make things unmanageable, and this systematic failure is then overcome by a new central context or institution that reintegrates a part of everyone's expectations by a general mechanism, in order to reduce the transaction costs.
Hardin's "tragedy of the commons" appears to be the inverse, but it is another case of the same thing, only working at a different level. Here the idea is that, in the absence of some kind of central understanding, (whether it is private property, centralized government ownership, or local common-pool resource institutions,) a natural resource may be quickly depleted. (There is a theoretical argument of course as to which type of governance is most effective, but in the real world it depends upon the resource and history.) The atomism here is in the quickening race of personal opportunities and preferences, which shred the unprotected resource.
The respect of minority rights is never absolute, and you mention "the desired degree." What it comes down to in a democracy is a decision by majority agreement, even unto changing its constitution. What we do is spread it out over as much time as possible, so we can think about it and talk about it. This is the mechanism -- there is not another abstract rule outside of it.
It is legitimate to ask whether democracy can survive, (although it is not clear what sort of entity could rule the roost instead.) We may be coming to an acid test of this, with the "war on terror."
Posted by: Lee A. Arnold at Jul 6, 2008 11:18:50 AM
The issue of intellectual property rights is delicate since the peculiarities of production and distribution make it hard to analyze efficiency. Add on top the bureaucratic process of granting many intellectual property rights and it's hard to argue that there is efficiency in this type of markets. Knee jerk reactions of the "information should be free" type don't work either.
But the New York times as an example of "anti-commons" problems? That's ridiculous! What's the big innovation and welfare improving product that NYT provides? There is nothing that Tyler writes in the NYT that he can't write just as well on "Marginal Revolution."
And why do they need a big fat office in the middle of Manhattan anyway?
For things like roads the "anti-commons" problems are real -- but the "property development" examples seem fishy to me.
Posted by: Alex at Jul 6, 2008 11:20:44 AM
Lawrence Lessig's _Free Culture_ also treats this subject at length. You can buy http://www.free-culture.cc/get-it/ or legally download for free in a variety of formats http://www.free-culture.cc/freecontent/
In Eldred v. Ashcroft Lessig argued against the constitutionality of the 1998 Sonny Bono Copyright Term Extension Act: http://en.wikipedia.org/wiki/Eldred_v._Ashcroft
David
Posted by: david at Jul 6, 2008 11:59:22 AM
Lawrence Lessig has some good ideas for dealing with the copyright problem, at least. A simple requirement that the copyright be registered and that the holder pay a nominal fee - he suggests $1.00 - to register it would make it much easier to locate copyright holders and negotiate for permission to use their materials.
Right now there is no easy way to do this.
Posted by: Bernard Yomtov at Jul 6, 2008 12:03:29 PM
Based on your summary of the works, Tyler, it doesn't seem that ownership per se is the problem but rather poor mechanisms for searching for and coordinating with the relevant owners, or recognizing ownership rights in things that were poorly qualified to be ownable.
Certainly, advocates of strong property rights like them because they make such boundaries well-defined. Failing to adhere to this ideal is not a failure of property rights but a failure of those that are charged with enforcing them.
There is a parallel here with the attempts to create financial regulatory regimes by having an ever-expanding list of rules that must be followed, that don't actually encourage responsible behavior. Which incidentally I was just going to blog about, so maybe with this it can be a more complete post.
Posted by: Person at Jul 6, 2008 1:45:16 PM
Problems arising from copyright are poor examples of problems with ownership. Copyright is a state protected monopoly and is very far from what is normally meant with ownership. "How Too Much State Involvement Wrecks Markets, Stops Innovation, and Costs Lives" would have been a better title.
Posted by: sww at Jul 6, 2008 1:59:23 PM
Why can't we have a legal system where you just produce the thing, the originator sues you, use of the material is easy to prove (obvious), you pay the higher of a reasonable amount prorated to what the piece added to your revenue or what you took away from the originator through direct competition.
I suppose the logistical sticking point in this equation is the prohibitive legal fees, but this way the upfront burden is on the originator. And I guess the theoretical sticky wicket is the idea that ideas are property and thus, are only to be controlled by the originator/owner. But, isn't the justification for IP to promote innovation to meet consumer demands? I don't understand how this justification matches up with a system that allows squatting on ideas.
Posted by: Andrew at Jul 6, 2008 2:04:05 PM
Why don't we start calling this the "Tragedy of the Privates"? After all, I've noticed many economists enjoy a good dose of schoolboy double-entendre... and I'm sure this could turn a number of graduate papers into massively extended puns which are, at the very least, entertaining to read.
Posted by: Caliban Darklock at Jul 6, 2008 3:11:44 PM
NYC is a big place, I find it awfully hard to believe they couldn't have found a site elsewhere that was far cheaper to build on. Of course for a certain breed of person (limosine types and outright snobs) only Manhattan can be considered NY.
Yet another reason I won't ever pay a dime to read the NYT, and will only read it when linked to, not as a primary source of news.
Posted by: happyjuggler0 at Jul 6, 2008 3:50:50 PM
The power of Not In My Back Yard politics is directly dependent on the number of Back Yards. America traditional had a relatively free economy in large part because it had lower population density, and thus fewer Back Yards to be affected by new developments.
The most effective way to limit gridlock is to limit the number of Back Yards by not pushing the pedal to the metal on population growth. Most population growth is now caused by immigration, so the most straightforward way to limit gridlock is to reduce immigration.
Posted by: Steve Sailer at Jul 6, 2008 5:30:12 PM
"By the way about half of the patents litigated to judgment are not upheld."
Isn't that about what you would expect? When the patent is clearly invalid, the parties settle. When the patent is clearly valid (and infringed), the parties settle.
In the 5% of filed suits that make it to final judgment (that's pretty close to the right number), there's decent arguments on both sides and the parties just aren't sure....
Posted by: Anon E. Mouse at Jul 6, 2008 9:21:45 PM
The opposite of the anti commons is the can-do society, which has greater, not lesser, minority rights, because a minority can do stuff without worrying too much about its impact on others. Thus China now leads the world in building energy facilities. The Chinese now build the safest and cheapest nuclear plants in the world, because they could build stuff safe rather than build stuff that had to comply with a zillion permits, because safety was designed in by a single engineering team instead of fifty seven different teams of bureaucrats.
Posted by: James A. Donald at Jul 6, 2008 10:18:47 PM
Steve, better yet, there are several good examples in the 20th century where governments were able to get things done by reversing population growth.
Posted by: TRE at Jul 7, 2008 2:14:02 AM
My dad was an inventor who felt that inventors were not the primary benificiaries of the patent process.
RCA corporation had begun using Glen Rowell’s technology for tuning radio, television and wireless data signals. RCA’s chief executive officer, David Sarnoff, built the company by stealing intellectual property from inventors. The method was simple. RCA could exhaust inventors over years of court proceedings. RCA could pay lawyers for much longer periods than independent inventors could.The distressing drama of Glen Rowell and RCA continued while I grew up through secondary school and high school. Glen Rowell finally had spent all the money he had and could borrow, and he gave up. Glen Rowell came to be the head of the Underwriters’ Laboratories and chairman of the Minnesota state Board of Electricity. He could not be disparaged.
By the time I reached the threshold of adulthood I had concluded that independent inventors have very little chance of benefiting from their inventions. I became acquainted with the stories of many other inventors who lost rather than gained from their creations.
Philo Farnsworth, the inventor of television, had his resources and his mental health destroyed by RCA’s legal gamesmanship that lasted until Farnsworth’s patents were about to expire.
Back in the days of piston-engine powered transport airplanes, I began to patent an invention. When I made the patent search I discovered that my idea had been patented about 15 years earlier. I could not understand why the invention was not used. Then when the patent did expire, aircraft manufacturers rushed to use it. The invention was a way to make the flow of engine-cooling air approximate the need for cooling. That is, cooling air flow would be greater when the engine was working hard and putting out more heat, and cooling air flow would be less when reduced power reduced need for cooling. It takes large amounts of energy to accelerate ambient air to nearly the speed of the airplane. That loss was reduced by using jets of engine exhaust gas to pump air though the engine compartment in rough proportion to need. The result, for the Convair airliner, was approximately 250 free horsepower per engine.
Strangely, corporate executives chose to waste many thousands of dollars in extra fuel cost rather than have the inventor receive any reward for his invention. Friends have offered theories about this strange phenomenon People whose talent is for deceiving and taking are envious of persons who can be proud of their abilities. Their way to feel superior is to win at cunning money games.
Posted by: Christina at Jul 7, 2008 8:59:13 AM
It has nothing to do with ownership in the natural rights sense. It's all about political power.
Posted by: Miklos Hollender at Jul 7, 2008 9:07:19 AM
Orphaned copyright is the one reason I did not buy the WKRP In Cincinnati DVD box set. Because the publisher could not find and secure the rights to some music, some scenes have been removed, while others have had the music replaced or removed. Why would I buy an inferior product?
Posted by: Vincent Clement at Jul 7, 2008 9:07:45 AM
The problem isn't the ownership per-se; the problem is that the ownership was/is acquired at too low a price - so we end up suffering the natural consequences of perverse incentives. Like patent-trolls; if patents cost a LOT of money to file, or if there were substantial penalties for patents which really weren't original art, the problem would become far smaller without penalizing most legitimate inventions.
Posted by: M1EK at Jul 7, 2008 10:20:50 AM
The ultimate end of the tragedy of the commons...
Posted by: jomama at Jul 7, 2008 10:30:07 AM
