The Half-Life of Policy Rationales:

How New Technology Affects Old Policy Issues

Better Technology Reduces Transaction Barriers

The Basic Argument:

The invisible hand (voluntary economic acts)

is blocked when costs obstruct gainful exchange

or prevent competition.

Better technology reduces such costs.

Interventionist policy whose rationale is to overcome such barriers therefore have a

"half-life," fading away as technology advances.

Counter-argument: Government also becomes more effective due to technology.

However, the incentive argument recommends free enterprise.

Government often fails to do the good that it is technically capable of.

The free enterprise system creates for its participants incentives to pursue what is efficient, and good for society.

Hence, the incentive advantage recommends free enterprise, given technical and institutional workability.

Also, we shall argue later that the government faces an increasingly difficult knowledge problem.

For many policy areas, the case for intervention has always been weak. Now even weaker.

Technology enhances property rights,

metering its use and excluding nonpayers

Technological advancement reduces:

Transaction costs:

costs beyond price paid to the seller

Direct costs: of production or acquisition.

Effects of lowering transaction costs:

1) Goods become more meterable:

more capable of being measured and recorded.


Electronic Tolling of Roads.

Price-based Metering of Parking.

Remote Sensing of Automobile Emissions.

2) Goods become more excludable. Unmanageable commons

individualized property.

Better tech: clearer, more extensive,

better protected property rights.

Less costly to mark property boundaries.

Less costly to detect and prevent trespass.

Historic example: barbed wire

Modern example:

The oceans: electronic fencing, tagged animals.

Nature conservancy could own tagged whales.

Can charge for fishing in ocean territory.

The lighthouse. Charging was feasible;

new tech provides better navigational signaling.

3) Better Technology Reduces the Costs of Quality and Safety Assurance.

Consumer information using the Internet, phone.

Better private monitoring, certifying.

Reduced costs of obtaining knowledge, including reputational information.

Reduces informational asymmetry.

Reduced rationale for product restrictions

and mandatory professional licensing.

Example: electronic money, banking, finance:

both direct and transaction costs reduced.

Protection of privacy: encryption technology.

Reduced costs of converting currency.

Reduced costs of using financial derivatives.

Reducing the direct costs of production:

New Technology Tends to Dissolve the Natural Monopoly Argument

Natural monopoly:

high fixed cost, low marginal cost.

Better tech lowers fixed cost.

Industry becomes less concentrated.

Reduced or eliminated rationale to regulate.

Electricity: co-generation,

small-scale generation by microturbines.

Water: on-site recovery, recycling.

Mail delivery:

new substitutes reduce monopoly power.

Combined delivery reduces costs.

Spencer Heath MacCallum:

Entrepreneurial communities ("Entrecomms")

Public goods such as streets, parks, security, now mostly provided by government.

Technological advancements such as the automobile and communications enhance contractual governance, e.g. of multiple-tenant income properties (MTIPs).

Real estate such as apartments, hotels, offices,

industrial parks, shopping malls, campus.

The site rentals are a market signal of efficiency,

consumer well being, reflecting benefits.

Proprietary governance makes efficiency-

enhancing changes less costly, more feasible.

Less politics, less opportunism, more variety.

Consumer satisfaction because of competition - and the automobile!!

Better technology makes community

information more available.

Private site rentals can replace today's taxation.


Better tech

* less natural monopoly.

* less non-excludable.

* more user paying.

* better protection of property rights.

* fewer negative externalities

* proprietary public goods

Interventionist policy rationales depend on the available technology. As the tech advances,

these rationales have a "half-life," like elements which transform over time.

Less rationale for government intervention.

"Technological advancement tends to enhance the case for a free-enterprise policy." (Intro)