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.

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.