Byzantine political economy

With Sinclair Davidson and Jason Potts.

Abstract: For decades, computer science and economics have been working on the same questions in parallel. But each field has offered strikingly different answers. This paper examines the close relationship between what the study of distributed systems describes as Byzantine consensus and what the study of institutional economics describes as robust political economy. These parallels have become evident after the invention of distributed ledger technology (blockchain) via the Bitcoin cryptocurrency which provides a new technology for managing and coordinating knowledge about property rights. Blockchain is the instantiation of a new form of social infrastructure that securely decentralises property ledgers. As such it represents a shift in the role of government as a centralised property ledger.

Available at SSRN.

Blockchains and institutional layering as a new approach to economic development

With Darcy Allen.

Abstract: Since the mid-twentieth century, development economists have identified barriers to economic growth including financing a savings-investment gap, planning investments, and making lasting institutional change. Efforts to overcome these development barriers range from centralised planned intervention to decentralised entrepreneurial search. In this paper we analyse the impact of blockchain technologies on economic development. We propose that blockchains facilitate a more decentralised entrepreneurial process of economic development through institutional layering. This dynamic leads to a more permissionless, polycentric and institutionally sticky economic development process. Blockchains shift the entrepreneurial process by which development problems are defined and ameliorated through time.

Working paper available at SSRN.

Capitalism after Satoshi: Blockchains, dehierarchicalisation, innovation policy and the regulatory state

With Sinclair Davidson and Jason Potts.

Abstract: What are the long-run economic and policy consequences of wide-spread blockchain technology adoption? We examine the structural economic effects of this institutional innovation as disintermediation in markets, dehierarchicalisation of organisations, and growing private provision of economic infrastructure for exchange, contracting and coordination. We predict that these institutional economic dynamics undercut the historical rationale for much modern economic policy, originally formulated to enable capitalism to cope with market power, to control hierarchy, and to furnish public infrastructure for trust. We argue that capitalism built on distributed ledger technology requires different economic policy settings to industrial capitalism, based on centralised ledger technology. We formulate the institutional logic of this dynamic co-evolutionary model, and discuss policy settings for an economy coordinated with blockchain infrastructure and associated distributed digital technologies for economic coordination (Web3, Industry 4.0). We find that much modern economic policy will be differently instantiated (e.g. hard-coded in platforms) or variously no longer necessary (because of new institutional solutions to problems of trust and coordination). We argue that the institutional innovation of blockchain engenders a new post-industrial economic era that requires new policy rules. This paper seeks to explain why this change will occur, and to explore a new framework for economic policy adapted to economic infrastructure built on distributed ledgers.

Available at SSRN.

Blockchains and Constitutional Catallaxy

With Alastair Berg and Mikayla Novak

Abstract: The proposition that constitutional rules serve as permanent, fixed points of interaction are challenged by observations of contestable rule amendment and the emergence of de facto authority. This observation not only applies to conventional political constitutions, but to the fundamental rules which govern interactions by numerous people using new forms of technology. Blockchain technology aims to coordinate action in a world of incomplete information and opportunism, but the governance arrangements in blockchain protocols remain far from settled. Drawing upon recent theoretical developments regarding constitutional change, we interpret changes to the fundamental working rules of blockchain protocols as central to the adaptive, emergent nature of activity within this technological space. We apply this concept of “constitutional catallaxy” to selected blockchain platform case studies, illustrating the dynamism inherent in establishing protocols within the blockchain. Blockchain coordination changes and adapts not only to the technological limitations of the available protocols, but to mutual expectations and influence of interacting stakeholders.

Available at SSRN

From Industry Associations to Ecosystem Associations: Blockchain, Interest Groups and Public Choice

With Mikayla Novak, Jason Potts and Stuart J Thomas

Abstract: Conventional public choice literature suggests that interest groups have a largely malign effect upon the economy. Suggesting that interest groups are primarily established to lobby governments for rents, the public choice approach essentially rests upon normative presumptions concerning the appropriateness of relationships between interest groups and the state. This analysis tends to overlook constructive roles undertaken by interest groups to facilitate economic coordination, including the facilitation of technology adoption, and to collaborate with political and other actors to overcome obstacles to innovation and industry dynamics. The development of blockchain technology in recent years serves as a useful case study illustrating the role of interest groups in contributing toward the development of a blockchain-enabled economy. We provide support for our general hypothesis of a beneficial economic contribution by interest groups by profiling the activities of blockchain industry associations. This paper also considers to what extent interest group involvement in blockchain coordination and governance is designed to pre-emptively avoid more stringent governmental action, or respond to perceived inadequacies in public policy settings. This study contributes to a revision of public choice scholarship regarding the appropriateness of interest group activity.

Available at SSRN.

Outsourcing vertical integration: Distributed ledgers and the V-form organisation

With Sinclair Davidson and Jason Potts

Abstract: This paper introduces the V-form organisation, a new form of firm organisation where vertical integration is outsourced to a decentralised distributed ledger (a blockchain). V-form organisations rely on the coordination of a (trusted) third party. It looks specifically at two instances of V-form organisation being established on the IBM-Linux Foundation Hyperledger permissioned blockchain. The paper concludes with four recommendations for strategic management about how to adjust to a V-form world, and four recommendations for policymakers.

Available at SSRN

Crypto Public Choice

With Alastair Berg and Mikayla Novak

Abstract: This paper presents ‘crypto public choice’ which examines the economics of collective decision making in the functioning of blockchain protocols and among related communities of users. We introduce the blockchain community to public choice theory and show how it can be applied to the study of this technology. Public choice offers an extensive literature that can be applied to blockchain design, can interpret the actions of different types of blockchain users, and can explain governance problems and challenges in each of the blockchain protocols. Blockchains are institutional technologies which provide new ways in which to produce public goods including consensus over shared facts and the security of property rights. Collective decision making by users of blockchain protocols relates to consensus over the contents of a shared ledger, as well as the initial design and subsequent upgrading of these protocols.

Working paper available at SSRN

Institutional Discovery and Competition in the Evolution of Blockchain Technology

With Sinclair Davidson and Jason Potts

Abstract: Blockchains are an institutional technology for facilitating decentralised exchange. As open-source software, anybody can develop their own blockchain, ‘fork’ an existing blockchain, or stack a new blockchain on top of an existing one – creating a new environment for exchange with its own rules (institutions) and (crypto)currency. Since the creation of Bitcoin in 2008, blockchains have proliferated, each offering iterative institutional variation. Blockchains present a discrete space in which we can observe the process of institutional discovery through competition. This paper looks at the evolution of blockchains as a Hayekian discovery process. The public nature of blockchains – most blockchains offer public transaction – allows us to observe experimentation and competition at an institutional level with a precision previously unavailable compared to other instances of institutional competition.

Available at SSRN.

Identity as Input to Exchange

With Alastair Berg, Sinclair Davidson and Jason Potts

Abstract: Identity is an integral part of all but the most trivial economic, social and political transactions. Using transaction cost economics, we determine that identity costs are a distinct and measurable subset of transaction costs. In certain transactions, such as credit arrangements, identity costs are incurred at considerable expense for commercial and compliance based reasons. Vertical integration can be seen through the lens of identity cost economising, including in the financial sector, due to high costs of complying with KYC regulations as well as commercial risk management. Such organisational structure is also contingent on available identity technologies. The introduction of blockchain and distributed ledger technologies in identity applications may see new models of institutional structures develop.

Working paper available at SSRN.

Liberalism is Enduring and Urgent

Abstract: Liberalism is a philosophy of political economy that offers enduring principles about how we should seek to interact in groups and in human society more generally. Far from being outdated or archaic, those principles offer more convincing and powerful responses to our current challenges than any competing philosophy. While populism claims to offer straight-forward solutions to some of the difficulties of globalisation, it offers only half-hearted remedies for weaknesses in the operation of representative democracies, and populism has little capacity to reckon with the wave of technological changes set to revolutionise the global economy. Liberalism, by contrast, is uniquely suited to clarify and tackle these challenges. It offers coherent responses to globalisation, dissatisfaction with representative institutions, and technological change. This is not to say that all is well in the house of liberalism. There is an opportunity, if not to reconstruct, then to refresh and retarget liberal thinking on these issues.

Available at SSRN