Category: Working paper

The problem of ‘freezing’ an economy in a pandemic

This is a draft extract from Unfreeze: How to create a high growth economy (originally titled Cryoeconomics: How to Unfreeze an Economy), with Darcy WE Allen, Sinclair Davidson, Aaron M Lane and Jason Potts

The 2020 global pandemic abruptly brought into question many of our social, economic and political institutions. COVID-19 is more than a public health crisis—as economies and states falter there are deep questions about the resilience and robustness of our political and economic systems. Are we too reliant on global supply chains? If regulations don’t make sense in a crisis, do they make sense afterwards? Today we are presented the opportunity to rebuild the institutions and organisations of our modern economy. If we do this right, through a process of entrepreneurial discovery and bottom-up solutions, then we will emerge with a political-economic system that acts as an engine for prosperity, and one that is more resilient and robust to future shocks. In this book we tackle those questions and fill some of the current void of ideas and thinking about economic and political recovery. We develop a framework and principles for an institutional re-build, presenting a path to recovery based on the ideas of private governance, permissionless innovation and entrepreneurial dynamism.

Available at SSRN or in PDF here.

Identity technologies: A transaction cost approach

With Sinclair Davidson and Jason Potts

Abstract: Identity is an input into economic exchange and contracting. The modern industrial economy has relies on cheap political identity to create trust and lower transaction costs. Market economies, however, have different identity needs than an administrative state. Economic efficiency in a digital economy requires high-quality economic identity to facilitate co-production of value on platforms, and to enable market competition through product-quality discrimination. Blockchain technologies and related advances are bringing innovation to economic identity technology. In this paper we explore state-produced identity and market-produced identity, the dynamics that exist in their demand and supply, how these categories are being shaped by technological change, the implications for privacy and secrecy, and the role of the state in market-produced identity.

Available at SSRN.

Blockchain and the New Economics of Healthcare

With Darcy W E Allen, Anastasia Pochesneva and Jason Potts

Abstract: In this paper we outline the economics of healthcare as a problem of coordinating data and examine how blockchain technology might be applied as new economic infrastructure to govern those data rights. We argue that blockchain as a technology of trust pushes the economic organisation of healthcare data away from large, centralised hierarchical organisation towards decentralised, emergent platform organisation. The fundamental problem in healthcare is the coordination and governance of information around decision making (e.g. patient records, licensing of professionals, medical trial data, supply chains). The new economics of healthcare emphasises how this information is governed (e.g. through firms, governments, markets, blockchains) and how the most effective governance changes through time as new technologies of trust are developed. We examine the potential of blockchain as new healthcare data infrastructure (including ensuring the integrity of pharmaceuticals and devices, medical records and data markets). Our view is that blockchain fundamentally shifts healthcare data property rights away from centralised third parties (e.g. hospitals, companies, governments) towards decentralised data property rights held by individual patients. The future platform-based healthcare ecosystem will act as the foundational institutional infrastructure for new competitive solutions to healthcare problems (powered up through other technologies such as the Internet of Things and Artificial Intelligence), helping to solve a growing healthcare productivity crisis.

Available at SSRN

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.

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.