Sharing Nicely

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* Article: Sharing Nicely: On Shareable Goods and the Emergence of Sharing as a Modality of Economic Production. By Yochai Benkler. Yale Law Journal, 2004

URL = http://www.yalelawjournal.org/essay/sharing-nicely-on-shareable-goods-and-the-emergence-of-sharing-as-a-modality-of-economic-production [1] [2]

Abstract

1.

"The paper offers a framework to explain large scale effective practices of sharing private, excludable goods. It starts with case studies of distributed computing and carpooling as motivating problems. It then suggests a definition for “shareable goods‿ as goods that are lumpy and mid-grained in size, and explains why goods with these characteristics will have systematic overcapacity relative to the requirements of their owners. The paper then uses comparative transaction costs analysis, focused on information characteristics in particular, combined with an analysis of diversity of motivations, to suggest when social sharing will be better than secondary markets to reallocate this overcapacity to non-owners who require the functionality. The paper concludes with broader observations about the role of sharing as a modality of economic production as compared to markets and hierarchies (whether states or firms), with a particular emphasis on sharing practices among individuals who are strangers or weakly related, its relationship to technological change, and some implications for contemporary policy choices regarding wireless regulation, intellectual property, and communications network design."


2.

"The world's fastest supercomputer and the second-largest commuter transportation system in the United States function on a resource- management model that is not well specified in contemporary economics. Both [email protected], a distributed computing platform involving the computers of over four million volunteers, and carpooling, which accounts for roughly one-sixth of commuting trips in the United States, rely on social relations and an ethic of sharing, rather than on a price system, to mobilize and allocate resources. Yet they coexist with, and outperform, price-based and government-funded systems that offer substitutable functionality. Neither practice involves public goods, network goods, or any other currently defined category of economically "quirky" goods as either inputs or outputs. PCs and automobiles are privately owned, rival goods, with no obvious demand-side positive returns to scale when used for distributed computing or carpooling. The sharing practices that have evolved around them are not limited to tightly knit communities of repeat players who know each other well and interact across many contexts. They represent instances where social sharing is either utterly impersonal or occurs among loosely affiliated individuals who engage in social practices that involve contributions of the capacity of their private goods in patterns that combine to form large-scale and effective systems for provisioning goods, services, and resources."


Review

Summary from the reading notes of Michel Bauwens, 2005:

[email protected] and carpooling represent an economic mystery:

   - it is based on sharing, not on public goods
   - the goods are, in case of carpooling, rival and privately owned
   - the sharing is impersonal, not based on a closed community

Yet they out perform both governmental and price-based schemes. Benkler chooses to call this category, "non-reciprocal sharing', to distinguish it from exchange-based gifting. He seeks to define "a particular class of physical goods as shareable goods", that systematically have excess capacity, and wants to combine the study of comparative transaction costs and motivation analysis, to suggest that this excess capacity may be better harnessed through sharing relations than through secondary markets. (p. 276)

Shareable goods are lumpy: capacity comes in discrete packages, so you always have excess. They are 'mid-grained' in terms of granularity, i.e. widespread.


A key condition is a 'highly distributed capital structure', which enables individual action, for example as we can see in, 'user capitalized computation and communication capabilities'.

Benkler clearly distinguishes

   - 1) price-based
   - 2) hierarchy-based, and
   - 3) Sharing-based

as three alternatives.


Section I - Case Studies

Carpooling

Carpooling and distributed computing share four characteristics:

   - 1) large-scale sharing among weakly or non-related individuals
   - 2) they are private economic goods owned by individuals
   - 3) there exists market alternatives
   - 4) the output is a rival good that could be put to other uses

Benkler says that "they are like peer to peer networks".

In carpooling, money is used for cost-sharing, not as a price. Resource allocation is not determined by pricing. And, the use of money is rare. The decision to carpool another individual is determined by social relations, i.e. co-workers and same-destination travellers may have preference.

However, barter is prevalent, in the form of burden-sharing, i.e. X drives even days, Y the uneven days, etc.. . It is highly decentralized, and does not use government or market. The main motivation seems instrumental, i.e. saving money or having access to a special lane.


[email protected]

This distributed computing project is motivated by the advantages of parallelisation, by the enormous scale possible through the use of internet spare cycles, which achieves much higher speeds than even supercomputers, and at very low cost. Only 2 out of 60 projects involved any payment. All of these projects assume the motivation is altruistic, but enable self-recognition statistics and such. Some allow for inter-team competition.


Section II: Lumpiness, Granularity, and Shareable Goods

Lumpy goods come in discrete amounts:

   - fine-grained: cup of coffee, no excess
   - mid-grained: individually, purchased with excess
   - large-grained: need aggregation as they are too big and costly, f.e. an industrial machine

The welfare-producing use that a resource enables is is functionality. Its capacity is the degree to which its functionality can be used. Goods have a lifetime capacity.

A perfectly renewable good is capable of delivering exactly the same functionality over time. An imperfect renewable good may loose functionality or have reduced lifetime through use. Non-renewable resources can be used only once.

Spectrum is a perfectly renewable resource. Computers are almost perfectly renewable. A perfectly renewable good is like a non-rival good.


Table: Benkler's Analysis of Competitive Advantage

   - MARKETS                    STATES                    SOCIAL RELATIONS
   - Prices vs. Firms
   - Pricing              Managerial command        Social Sharing Systems 
   -                          State Provisioning
   - Setup Costs + Marginal Transaction Costs


Some resources are rapidly decaying. In this case, unless capacity is used by others, it is wasted. Examples of this are cars on a single trip with one person, or the sharing of large animals by hunters.

In case of lumpy goods, excess is inevitable, and Benkler calls it 'slack'. Generalized slack can generate 'secondary markets' (such as yard sales). Secondary markets and social sharing are alternative transactional systems for transferring excess capacity. They differ in transaction costs and in the quality of information. Such overcapacity is not a rare, but a generalized occurence (seats of cars, computer cycles, books).

Yochai Benkler writes: "One often hear people speaking of 'a market in reputation' .. It is important to note that such statements are metaphors. Markets as actual institutional forms are a particular information process, generating information in a very particular form -- prices. Other modalities of allowing unorganized individuals to decide on their actions without hierarchical coordination, even if they are fully distributed and automatic in style, but that rely on other institutional forms and social practices, are not 'markets', except metaphorically." (p. 305)


Section III: Sharing and Markets

How to arrive at a decision as to whether to share or sell a resource? Benkler analyzes transactional costs and motivational:


- leaving a resource open to anyone's use is the lowest transactional cost option (no control, no guards), but may have high congestion costs, unless the resource is abundant

- total exclusion may be costly, if the investment has to be repeated (this may lead to tolerated left, ie allowing 'jumping turnstyles' in metro stations)

- partial exclusion may be expensive as well (central apparatus needed)

- in the case of shareable goods with excess capacity, any advantage may be a plus for the owner

- non-selective partial exclusion: first-come, first-serve as long as there is availability

- selective exclusion: through a market which excludes those who cannot pay

- selective exclusion according to rules

- Bestowing a benefit to loved ones is probably the most common reason for social selectivity.

- The price of open sharing can be security or congestion related , hence the choice for trusted procedures (carpooling) or programs (CETI), rather than random open sharing.


- "When all forms of exclusion are more costly than permitting everyone to use the resource, owners will simply allow others to use the goods and resources they own." (p. 310).

An example is WiFi access points, in this case:

           - perfect exclusion (no one else can use) 
           - open sharing (even passers by can use)
           - and selective exclusion (only for friends with passwords)

are all possible and similarly cost less. Yet many are choosing for open sharing.


Transaction cost analysis of markets and sharing:

Both markets and social exchange are forms of social exclusion and share basic transaction cost, but differ as related to information and enforcement costs.

Markets use a combination of the price system and managerial hierarchical reporting. Social frameworks use social cues that are usually less formal, and do not have the same crispness. The enforcement systems are simultaneously less formal, relying on social norms and reciprocity. (Crispness is a formal requirement of the price system, deriving from the precision of the currency)

The mark of the gift between close friends and relatives ... is not the absence of obligations, it is the absence of calculation (Godelier, cited by Lessig, p. 311)

- "Actions enter into a cloud of good will or membership, out of which each agent can understand himself as being entitled to a certain flow of dependencies or benefits in exchange for continued cooperative behavoir." (p. 316)


- Social systems are not cost-free! :

- "They require tremendous investment, acculturation, and maintenance. Once functional, social exchange requires less crispness at the margin." This means their marginal 'per-transaction' costs will be a lot less. This suggests that when slack capacity is locate in small quanta distributed among many owners, it becomes increasingly more costly to harness the excess capacity through markets, rather than through social exchange systems." (p. 317)

Each modality of production has its own ways of encoding, storing and transmitting information. The actual richness of the world is transposed into formally structured modalities of representation. This takes the form of prices in the market, and of reports in the firm and the state.

By contrast, information about social relations relies not on formal structure but on tacit, learned and culturally reproduced capacities to read and interpret social settings. Though this may present problems of clarity and formal processability, it allows for greater subtlety and nuance. There is less of a loss in its rendering requirements, than is the case in market and state-based production systems. There is less 'lossiness'.

The tradeoff between clarity and compatibility, on the one hand, and texture on the other, suggests that social systems will be relatively weaker in organizing actions for which there are clearer, computable, but fine differences between alternative courses of action.

But social communication systems offer a more complete statement of the factors relevant to agents' decisions. This is particularly important in conditions of persistent uncertainty.

In addition, distributed systems generally lose less information (including markets), because the agent is close to his world, but they have to give up control. To the extent that social production systems compete with centralized (i.e. monopolistic) markets, they cannot provide substantial information efficiencies.


Motivation

Benkler now shifts his focus from the transaction costs, to the motivational factors.


Two questions predominate current discussions:

   - 1) what is the source and form of non-monetary rewards
   - 2) the 'crowding out' question: do market-based monetary rewards undermine or improve non-monetary motivations ?


Richard Titmuss, in the early 1970s, in his study of blood collection, had already argued that blood donation was more efficient in quality and volume than a market (British vs US models). For him, markets reduced donative activity, but this claim was rejected by Kenneth Arrow. Later studies, by Bruno Frey, confirmed the 'crowding out' effect. Extrinsic motivations (for money), can reduce 'intrinsic' motivations.

The relative relationships of money and social-psychological rewards depend on culture and context.

The role of money in social production must be such that it does not conflict with non-monetary motivations.

When the state of technology results in excess capacity being widely distributed in small dollops, social sharing will outperform secondary markets" (p. 329)

Prices for small quanta will fail to motivate for a secondary market (where each contribution is only marginal). When few are willing to sell, the transaction cost for selling will be greater than those for sharing.

This has substantial policy implications. If the government knows in which case social production is more efficient, it should stimulate it. In cases we don't know, policy should not favor either.


Section IV: Sharing as a Modality of Production

How can we conceive of the role of sharing in the economy ?


Sharing will be prominent if 2 conditions are met:

   - 1) radical decentralisation of the capacity to contribute and of authority to decide on the contribution
   - 2) resilience on social information flows, organizational structures, and motivation approaches rather than on prices or commands


We are now faced with situations where the old market or state-based production systems are detrimental to the provision of goods and services, for example:

   - in wireless spectrum management
   - in the regulation of information and cultural production
   - in computational and wired networks (due to their P2P architectures)


To date, sharing is either relegated to the periphery, or seen as an enabler for the market (as seen in the anthropological gift economy on the one hand, and in the literature on social norms, social capital, and trust, in case of the latter).

Free software and knowledge collectives are seen as different as what he has discussed so far, because what is shared is not excess physical capacity, but creative effort. But is also depends still on 'excess creative capacity'.

Benkler then describes how sharing is in fact everywhere, as the 'dark matter of society', essential, but not seen

Sharing Is Sensitive to Technology, Because Individual Efficacy Is Subject to Physical Capital Constraints

For sharing to be not just a mode of social reproduction, but a modality of production, it must be effective and this is dependent on physical capital constraints.

When a capacity is widely distributed and is easily acquired, sharing is possible. But when the requirements are large, sharing is unlikely (steel, automobile's, dams, etc ...). Even when social production systems, step into the breach, such as worker-owned cooperatives, they tend to replicate the organisation of markets and firms. Low threshold capital projects such as the lobster gangs of Maine, tend to be more fluid. However, even if a given level of technology imposes constraints, societies and cultures will differ in their openness to sharing alternatives. Observers have noted that sharing practices change attitudes and crate virtuous cycles (such as in carpooling).

Technology dependency also means opposite trends can occur: music was a social practice in the 19th cy, then became a market after the invention of the phonograph.


Decentralized, Loosely Coupled Social Sharing Is an Economically Attractive Modality of Production

Peer production has remarkable market-like qualities, since any agent can freely determine his actions, in a fine-grained manner and without great cost.

- "The phenomena I describe here .. resemble an ideal market in their social characteristics, but with social clues and motivations replacing prices." (p. 343)


They rely on impersonal, or 'loosely coupled' cooperation, and that is what allows them to scale to very large scale. More personal bonds would make the the process less fluid, the agents less free.


Section V. Some Current Policy Implications

A. Wireless Communication Regulation

It is likely that there will now be conflicts between hierarchies, markets, and social production. Benkler will discuss 3 exemplary cases.

Very early radio was decentralized but rapidly adapted a industrial model with central broadcasters and passive recipients. With the advent of the mobile, the conflict became one between central allocation or market re-allocation of spectrum. But is is now possible to forego spectrum allocation altogether.

Instead of capital goods (radio towers), vs consumer goods (radio receivers). we now have shareable goods, radio transceivers. Their own excess capacity generates the wireless system. Users want always-on connectivity, but do not use it 'all the time', hence the excess. FCC and Congress seem open to such a regime.


B. Information, Knowledge, Cultural Production Policy

Despite the fact that culture and knowledge were always considered to be public goods, market views gradually started to become strong, influenced by the Hollywood and recording industry models. But Napster has shown how anti-thetical the new forms of technology and peer production are to this model. Capital requirements to reproduce, share, and distribute such contents are very low.

- "They produce both the physical and informational aspects of the distribution system collaboratively on a social sharing basis. " (p. 350)

The six degrees connectivity principle is more likely to bring music where it is more needed. What can it effects be on music production itself?

That is the key controversy, with the industry arguing that it is the income of distribution which funds production.

Given the continued existence of the freedom to share, there is no doubt that the sharing modality will partially, or even completely, 'crowd out' the market modality.

In P2P networks, people combine 'public goods' (songs) with shareable goods (storage media and bandwidth) to provision themselves.


To destroy it, the industry would have to destroy:

   - 1) the flexibility of networks
   - 2) low-cost processors'
   - 3) sharing culture


C. Network design for a Network of Shareable Goods

Code is policy. But per-packet pricing schemes have never caught on., being refused by the users. The reason is that they prefer alternatives that allow sharing, involving schemes for capacity sharing and load balancing.

Generalized, impersonal social exchange, is a good way to provision resources. Benkler presents Skype as a case study, which uses overcapacity.


In conclusion, Benkler provides sources for further study:

   - 1. the anthropology of the gift
   - 2. the sociology and economics of reciprocity
   - 3. the literature on common property regimes.