The Gridlock Economy

by on July 6, 2008 at 6:55 am in Books, Law | Permalink

How many popular economics books offer a message which is (mostly) true, non-trivial, and understandable?  Michael Heller’s The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives satisfies that troika.  The key message is that the "tragedy of the anti-commons" is often a bigger problem than the better-known tragedy of the commons.  The tragedy of the anti-commons arises when too many veto rights are exercised.  Here is one simple example:

Tarnation, a spunky documentary on growing up with a schizophrenic mother, originally cost $218 to make at home on the director’s laptop.  It required an additional $230,000 for music clearances before it could be distributed.

Or try tracking down orphaned copyrights or proceeding without explicit permission.  Furthermore many new drugs are more costly to market, or end up not being marketed, because there are so many possible patent infringement issues.  By the way about half of the patents litigated to judgment are not upheld.  Too many interest groups have veto power over infrastructure development, such as wind power or a new oil refinery (my examples).  The U.S. allocates its spectrum far less efficiently than either Japan or South Korea.  Holdouts lower the rate of property redevelopment; I learned that The New York Times used eminent domain to build its new headquarters because otherwise assembling such a large parcel of land in midtown Manhattan was very difficult.  It all boils down to the story of too many tolls on the medieval Rhine.

Yes, the author does give full credit to Buchanan and Yoon for their work on the anti-commons.

Heller does not cover the deeper question of whether a society can respect minority rights to the desired degree without encountering too strong a problem of the anti-commons.  Most of us are for the right to appeal, for the right to a fair trial, for various courses of redress, for the right to sue, for basic rights of intellectual property, and so on.  Some set of interest groups has to support those regimes.  Can those interest groups be so empowered without the excesses outlined in this book?  Would we still want to abolish the anti-commons problems if it led to a more general weakening of minority rights?

soft July 6, 2008 at 7:26 am

Sell Italian bonds. Italian public debt has reached a record high at 1646,7 billion euros.It is worse than 1992 when the country went very near to declare default(insolvency)

DF July 6, 2008 at 9:11 am

Well, no doubt it was less difficult for the NYT to accept the state’s offer to take the buildings and hand them over, with millions of subsidies besides, than to actually ask the existing property-owners what it would take to get them out. But while nobody denies that the existence of a holdout problem, I think the NYT is a poor example of it.

http://www.reason.com/news/show/32227.html

Bruce Ratner, president of the real estate development company working with the Times on its proposed new Eighth Avenue headquarters, called the project a “very important testament to our values, culture and democratic ideals.”

Those “values” and “democratic ideals” included using eminent domain to forcibly evict 55 businesses–including a trade school, a student housing unit, a Donna Karan outlet, and several mom-and-pop stores–against their will, under the legal cover of erasing “blight,” in order to clear ground for a 52-story skyscraper. The Times and Ratner, who never bothered making an offer to the property owners, bought the Port Authority-adjacent property at a steep discount ($85 million) from a state agency that seized the 11 buildings on it; should legal settlements with the original tenants exceed that amount, taxpayers will have to make up the difference. On top of that gift, the city and state offered the Times $26 million in tax breaks for the project.

Tom Kelly July 6, 2008 at 10:01 am

Loser pays (both sides expenses). The lack of this simple provision in law accounts for a large percentage of the problems mentioned.

We won’t try to enforce our small “rights” all the time if there is a significant risk/cost to doing so.

chug July 6, 2008 at 10:56 am

Another place to look at the “tragedy of the anti-commons” is in co-ops (cooperatives).

Two co-ops (one a consumer co-op and the other a producer co-op, both with more than 1,000 members each) I was involved with eventually went under when they got bigger than a few hundred members and faced problems that the members coud not agree how to address.

Alex July 6, 2008 at 11:20 am

The issue of intellectual property rights is delicate since the peculiarities of production and distribution make it hard to analyze efficiency. Add on top the bureaucratic process of granting many intellectual property rights and it’s hard to argue that there is efficiency in this type of markets. Knee jerk reactions of the “information should be free” type don’t work either.

But the New York times as an example of “anti-commons” problems? That’s ridiculous! What’s the big innovation and welfare improving product that NYT provides? There is nothing that Tyler writes in the NYT that he can’t write just as well on “Marginal Revolution.”
And why do they need a big fat office in the middle of Manhattan anyway?

For things like roads the “anti-commons” problems are real — but the “property development” examples seem fishy to me.

Bernard Yomtov July 6, 2008 at 12:03 pm

Lawrence Lessig has some good ideas for dealing with the copyright problem, at least. A simple requirement that the copyright be registered and that the holder pay a nominal fee – he suggests $1.00 – to register it would make it much easier to locate copyright holders and negotiate for permission to use their materials.

Right now there is no easy way to do this.

sww July 6, 2008 at 1:59 pm

Problems arising from copyright are poor examples of problems with ownership. Copyright is a state protected monopoly and is very far from what is normally meant with ownership. “How Too Much State Involvement Wrecks Markets, Stops Innovation, and Costs Lives” would have been a better title.

Caliban Darklock July 6, 2008 at 3:11 pm

Why don’t we start calling this the “Tragedy of the Privates”? After all, I’ve noticed many economists enjoy a good dose of schoolboy double-entendre… and I’m sure this could turn a number of graduate papers into massively extended puns which are, at the very least, entertaining to read.

Steve Sailer July 6, 2008 at 5:30 pm

The power of Not In My Back Yard politics is directly dependent on the number of Back Yards. America traditional had a relatively free economy in large part because it had lower population density, and thus fewer Back Yards to be affected by new developments.

The most effective way to limit gridlock is to limit the number of Back Yards by not pushing the pedal to the metal on population growth. Most population growth is now caused by immigration, so the most straightforward way to limit gridlock is to reduce immigration.

James A. Donald July 6, 2008 at 10:18 pm

The opposite of the anti commons is the can-do society, which has greater, not lesser, minority rights, because a minority can do stuff without worrying too much about its impact on others. Thus China now leads the world in building energy facilities. The Chinese now build the safest and cheapest nuclear plants in the world, because they could build stuff safe rather than build stuff that had to comply with a zillion permits, because safety was designed in by a single engineering team instead of fifty seven different teams of bureaucrats.

Christina July 7, 2008 at 8:59 am

My dad was an inventor who felt that inventors were not the primary benificiaries of the patent process.

RCA corporation had begun using Glen Rowell’s technology for tuning radio, television and wireless data signals. RCA’s chief executive officer, David Sarnoff, built the company by stealing intellectual property from inventors. The method was simple. RCA could exhaust inventors over years of court proceedings. RCA could pay lawyers for much longer periods than independent inventors could.

The distressing drama of Glen Rowell and RCA continued while I grew up through secondary school and high school. Glen Rowell finally had spent all the money he had and could borrow, and he gave up. Glen Rowell came to be the head of the Underwriters’ Laboratories and chairman of the Minnesota state Board of Electricity. He could not be disparaged.

By the time I reached the threshold of adulthood I had concluded that independent inventors have very little chance of benefiting from their inventions. I became acquainted with the stories of many other inventors who lost rather than gained from their creations.

Philo Farnsworth, the inventor of television, had his resources and his mental health destroyed by RCA’s legal gamesmanship that lasted until Farnsworth’s patents were about to expire.

Back in the days of piston-engine powered transport airplanes, I began to patent an invention. When I made the patent search I discovered that my idea had been patented about 15 years earlier. I could not understand why the invention was not used. Then when the patent did expire, aircraft manufacturers rushed to use it. The invention was a way to make the flow of engine-cooling air approximate the need for cooling. That is, cooling air flow would be greater when the engine was working hard and putting out more heat, and cooling air flow would be less when reduced power reduced need for cooling. It takes large amounts of energy to accelerate ambient air to nearly the speed of the airplane. That loss was reduced by using jets of engine exhaust gas to pump air though the engine compartment in rough proportion to need. The result, for the Convair airliner, was approximately 250 free horsepower per engine.

Strangely, corporate executives chose to waste many thousands of dollars in extra fuel cost rather than have the inventor receive any reward for his invention. Friends have offered theories about this strange phenomenon People whose talent is for deceiving and taking are envious of persons who can be proud of their abilities. Their way to feel superior is to win at cunning money games.

Vincent Clement July 7, 2008 at 9:07 am

Orphaned copyright is the one reason I did not buy the WKRP In Cincinnati DVD box set. Because the publisher could not find and secure the rights to some music, some scenes have been removed, while others have had the music replaced or removed. Why would I buy an inferior product?

jomama July 7, 2008 at 10:30 am

The ultimate end of the tragedy of the commons…

hwinva July 7, 2008 at 2:46 pm

“[A]bout half of the patents litigated to judgment are not upheld.” — this makes sense.

Get to judgment when the lawyers (or clients) misunderstand the law or the facts as they expect them to be interpreted by the court. If the result is clear, settle and avoid the expense of litigation to judgment. If the result is not clear, roll the dice and go to judgment.

It looks as if the law is clear in this (confusing to the layperson) area of the law, and that the calculations of the litigants, aided presumably by a consciousness of the high cost of litigation, are accurate.

Do verdicts get closer to 50-50 as litigation costs go up, and as the law gets clearer? Which is more important?

Jesse July 8, 2008 at 12:17 am

Knee jerk reactions of the “information should be free” type don’t work either.

Knee-jerk reactions are one thing. But how about a rational, carefully considered belief that the benefits of abolishing copyright would outweigh the costs?

Too many people take it for granted that we need copyright, that the usual incentives for working somehow aren’t enough to convince people to produce music, books, and other intellectual creations (even though they still suffice to convince everyone else to do every other type of work). The lack of evidence for this position doesn’t seem to stop anyone from believing it, but it’s about time we took a hard look at whether we really need copyright at all.

Russell Nelson July 8, 2008 at 2:48 pm

“Information should be free” is far from a knee-jerk reaction, but is instead a statement of reality. It is descriptive, not normative. If the market were free to set its own price, information should be free. The normative statement is “information should be property”.

Isaac K. July 10, 2008 at 12:44 pm

Such issues have a severe impact in the medical world, where intelleectual property and copyright law leads to buyouts from private inventors of medicines, procedures, and other medical supplies (such as contact lenses) by larger companies. Subsequently, these companies abandon the product or property altogether in an effort to protect their own bottom line, much to the detriment of the consumer.

For a medical example; I believe it was Proctor and Gamble who bought the property rights to a uniquely superior and cheap permanent contact lense design that was more prefereable than any set of disposable lenses. They then ceased manufacturing, as their is much more profit to the company by treating a recurring problem than solving the issue entirely.
This phenomenon is rather widespread across many medical fields and their practitioners (optometrists, opthomologists, and chiropracters are common examples) where “treating” a condition is practiced as a profitable alternative to actually helping the patient.

John Frost July 22, 2008 at 4:39 pm

The so-called “anti-commons” notion is a useful narrowing of the more general “transaction costs” notion of neo-classical economics. That is the extent of Heller’s contribution. He hasn’t stumbled onto a new theory, he’s re-directed our attention, and probably in a very beneficial way. The market-failure example du jour appears to be intellectual property, but there are many others.

Fair enough. No question there is room for improvement, perhaps to understate the situation. The world’s production function has placed greater weight over time on human and intellectual capital. Seems intuitive that there appears to be greater need for “assemblage” of protected intellectual products to produce certain goods highlights what might be considered a problem of ownership, and the similarity to real property assemblage in development not only is intellectually stimulating, but probably provides insights into how to solve the problem.

That being said, I can’t help but be a little disturbed by what seems to me an all-too-willing embracing of this gridlock idea as both innovative and dispositive (not just here, have you seen Wu’s review?). As I said above, it’s not innovative at all, rather it is a useful re-focussing of the transaction costs notion.

Nor is it dispositive. The fundamental questions that should be addressed are policy oriented: who decides when socially-adverse gridlock, or any gridlock, exists? And what are we willing to do about it? I think that question gets lost in all the celebrating over having stumbled onto an innovative theory.

green May 15, 2009 at 4:07 am

Did I see this kind article before?

lucy May 15, 2009 at 4:08 am

it is a good method

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