Blockchains Industrialise Trust

With Sinclair Davidson and Jason Potts

Abstract: Blockchains are the distributed, decentralised ledger technology underlying Bitcoin and other cryptocurrencies. We apply Oliver Williamson’s transactions cost analysis to the blockchain consensus mechanism. Blockchains reduce the costs of opportunism but are not “trustless”. We show that blockchains are trust machines. Blockchains are platforms for three-sided bargaining that convert energy-intensive computation into economically-valuable trust.

Working paper available at SSRN.

The Institutional Economics of Identity

With Sinclair Davidson and Jason Potts

Abstract: Identification forms a key part of all but the least sophisticated economic and political transactions. More complex or significant transactions demand more formal identification of the parties involved. In this paper we develop an institutional economics of identity. We distinguish between a Demsetzian evolutionary view of identity institutions and a ‘legal-centric’ view of identity institutions. In the former view, identity is a contextual, fluid and subjective, and evolved for market, social and political exchange. In the latter, identity is uniform and permanent, and created (imposed) by governments. Governments have an interest in identity insofar as identity is used in the process of tax collection, entitlements, and conscription. Private organisations free ride off state-provided identification services. The paper concludes with a discussion about technological change and identity management. We characterise two possible futures: one in which new technologies enable states to create more comprehensive uniform identities, and one in which new technologies enable identities to be ‘federated’ and transferred to citizens.

Working paper available at SSRN.

Populism and Democracy: A Transaction Cost Diagnosis and a Cryptodemocracy Treatment

Abstract: This paper argues that populism in the era of Donald Trump and Brexit is a reaction to high transaction costs between citizens and the political class. In the Westminster system, voters delegate large amounts of decision-making power to elected representatives, who in turn delegate much of their decision-making power to an executive government. A transaction cost analysis helps make concrete the ideas of reduced individual political autonomy, lost national sovereignty, and alienation from political elites that run through populist rhetoric and action. The treatment for problem of populism should focus on reducing those transaction costs. Democratic structures are shaped by the prevailing institutional and technological limitations in which they were designed. One new technology, the blockchain, offers a set of mechanisms to significantly reduce transaction costs in matching, writing and enforcing contracts. The paper provides an outline of how a ‘crypto-democracy’ would function and how it might address the problems of political transaction costs. Crypto-democratic relationships treat political delegation as a series of contractual relationships from citizen to an executive decision-making structure. Citizens contract among themselves to delegate or reserve decision-making power. In a crypto-democracy, democratic structures – i.e. legislatures, electoral bodies, voting systems, and executive authorities – are not designed but rather emerge in a Hayekian process of contractual interactions between political citizens exercising their property rights. The analysis sheds new light on the underlying structure of our current system, its costs and the populist backlash to those costs, and directions for liberal reform.

Working paper available at SSRN.

Delegation and Unbundling in a Crypto-Democracy

Abstract: Representative democracy consists of a chain of delegation from voters to the executive and a corresponding chain of accountability, with some questions (particularly constitutional questions) reserved for popular vote. This structure reflects the high transaction costs of coordinating preferences among a large and diverse population, which has in part been determined by technological limitations. A new technology, blockchain, significantly reduces transaction costs. This technology turns out to have significant implications for democratic governance. In a crypto-democracy, voters have contractual relationships that allow them to unbundle, delegate, re-rebundle and reserve their voting power. Rather than planning our democratic structure and thus restricting opportunities for political exchange, the use of blockchain in a crypto-democracy allows us to ‘grow’ a democracy in a Hayekian framework.

Working paper available at SSRN.

Adam Smith and Jeremy Bentham in the Australian Colonies

Abstract: How did early colonial Australians think about liberalism, economics and political economy more generally? Colonial Australia has been described variously as having a neoclassical, enlightenment, or Benthamite political culture. This paper provides an empirical approach to the question of early Australian ideas. Exploiting the records of 1,891 book sales and auctions in colonial Australia between 1800 and 1849, the paper examines the relative prevalence of key economic, political, and liberal texts available to colonial Australians. The works of neoclassical authors such as Adam Smith and John Locke were far more prevalent, and more likely in colonial demand, than those of Jeremy Bentham. To the extent utilitarian ideas were prevalent they were in the form of William Paley’s conservatism than Bentham’s radicalism.

Working paper available at SSRN.

The Economics of Crypto-Democracy

With Darcy WE Allen, Aaron M Lane and Jason Potts

Abstract: Democracy is an economic problem of choice constrained by transaction costs and information costs. Society must choose between competing institutional frameworks for the conduct of voting and elections. These decisions are constrained by the technologies and institutions available. Blockchains are a governance technology that reduces the costs of consensus, coordinating information, and monitoring and enforcing contracts. Blockchain could be applied to the voting and electoral process to form a crypto-democracy. Analysed through the Institutional Possibility Frontier framework, we propose that blockchain lowers disorder and dictatorship costs of the voting and electoral process. In addition to efficiency gains, this technological progress has implications for decentralised institutions of voting. One application of crypto-democracy, quadratic voting, is discussed.

Working paper available at SSRN.

Regulation and Red Tape in a Small Open Economy: An Australian Overview

Abstract: It is widely acknowledged in political circles that Australia has a high red tape and regulatory burden. However little scholarly attention has been directed towards understanding the extent and significance of that burden. This paper describes why red tape and regulatory reform should be treated as a particularly significant priority for a small, open economy such as Australia’s. Australia faces a number of economic and fiscal challenges and is likely to become more exposed to macroeconomic fluctuations in coming decades. Red tape and regulation slow adjustment to changes in that environment among individuals and firms. The red tape and regulation reform program should be seen as a central element in making Australia more resilient to local and global economic shifts.

Working paper available at SSRN.

An Institutional Theory of Free Speech

Abstract: The paper provides a theory of freedom of speech based on the new institutional political economy. Through politics individuals seek to achieve collectively what they would not be able to achieve individually, forming institutions of social control. But institutions have costs which need to be discovered. Freedom of speech facilitates information discovery about the subjective costs of social institutions. Those costs are not only discovered but created through the acts of speech and expression. The paper develops this institutional approach by contrasting and complimenting against the three dominant theories of free speech: Mill’s marketplace of ideas theory, Meiklejohn’s democracy theory, and Baker’s liberty theory. The paper then shows how the institutional theory can be meaningfully applied to two common questions in freedom of speech debates: that of protest on publicly accessible property, and the relationship between freedom of speech and political correctness.

Working paper available at SSRN.

Media Regulation: A Critique of Finkelstein and Tiffen

With Sinclair Davidson

Abstract: In this paper we provide a critique of the Finkelstein and Tiffen argument for increased regulation of the press. By failing to incorporate recent advances in the economics of regulation into their argument they fail to provide a coherent and rigorous foundation for their position. This leads them to overlook more obvious policy solutions to the problems they perceive in regulating the press. The Finkelstein and Tiffen paper also neglects to incorporate the political context underlying press regulation in general, and the Finkelstein Inquiry in particular. By underplaying the importance of both the economics of regulation and the politics of press regulation the Finkelstein and Tiffen paper misdiagnoses the problem under consideration and leads to inappropriate policy advice.

Working paper available at SSRN.