Public/Private “No”s and Permissionless Innovation.

On June 26, 2014 By valkenburghIn Uncategorized5 Comments

Hi all, my apologies for not posting lately (bar review is a pain in my butt). I was wondering if I could implore you all (dear readers and dear co-bloggers) to assault—or otherwise weigh in on—my co-worker’s post about permissionless innovation and contract law. This goes back to our public v private “no” posts. I think Geoff is right on target with regard to public “no”s:

The point is, when we talk about permissionless innovation for Tesla, Uber, Airbnb, commercial drones, online data and the like, we’re talking (or should be) about ex ante government restrictions on these things — the “permission” at issue is permission from the government, it’s the “permission” required to get around regulatory roadblocks imposed via rent-seeking and baseless paternalism.

I think Geoff is right about contract:

Just about all human (commercial) activity requires interaction with others, and that means contracts and licenses. You don’t see anyone complaining about the “permission” required to rent space from a landlord.

And Net Neutrality:

Which is why net neutrality is so misguided. Instead of identifying actual, problematic impediments to innovation, it simply assumes that networks threaten edge innovation, without any corresponding benefit and with such certainty (although no actual evidence) that ex ante common carrier regulations are required.

But I think he glosses over certain issues regarding non-tangible property. I submit that expansive intellectual property is akin to a public “no.” The weirdness about IP is that, unlike a broadband network or a landlord’s building, overbroad IP claims cannot be notoriously possessed except with costly and non-intuitive state delineation. If I have a patent on “doing escrow through a computer” — as in the recent CLS Bank case — I have no independent , private means of defining and enforcing the boundaries of my claim, none. Any attempt to go out in the world and persuade people to not use my big idea would be met with giggles, disregard, or aggression.

At least in the apartment or the fiber network there is rivalrous physical stuff to point to and say “stay off!” In the case of a patent to a vague idea, however, the only way to exert my claim against the world and put people on notice of my private “no” is to utilize a complex, legalistic regime that seeks to create, from whole cloth, the contours of a private right. The fact that this process is so divorced from the intuitive realities of day to day interaction makes expansive IP more like a public “no.”

It’s something you might accidentally tread over, something you might find standing in your way unexpectedly even if you’d no idea that the idea you are pursuing bears any relationship to some existing patent. Playing catch-up with the PTO and a multitude of private patent holders becomes just as bureaucratic and chaotic as persuading the FDA to license your new meds. At this point the private right does seem to endanger permissionless innovation.

To be clear, I don’t mean to suggest that this is at stake in ALL intellectual property. If the right is clearly delineated and reasonably defined then licensing shouldn’t be an impediment that draws the ire of the permissionless innovation crowd. The trouble only starts when the metes and bounds of the virtual property are so amorphous as to trap would be innovators in a near endless cycle of negotiations with both the private right holder and the public right definer. If the intellectual landscape becomes replete with these mine-like private nos, then the would-be innovator is locked into a world where inaction is preferable to the unpredictable consequences of innovating.

Those are my half baked, bar review-addled thoughts. What are yours? I’m sure Geoff will give me an earful. Feel free to comment on his post as well.

The one way ratchet of responding to children (and cats).

On June 17, 2014 By valkenburghIn UncategorizedLeave a comment

Adam found a great study that might indicate that kids’ “stories of punishment do not inspire changes in behavior, while stories about a virtuous role model (who is rewarded for his virtue) has a strongly positive impact on behavior.”

There’s a cynical way to look at this. First, three things about my perspective: 1) The mode of thinking I’m about describe came from my time as a preschool teacher, 2) I don’t have kids, 3) The technique does, however, seem to work on my cat.

It’s possible that kids (and perhaps cats) merely crave attention and feedback. The stories of punishment are stories of a behavior that received attention (fame as being the boy/girl that got eaten by wild animals or the boy/girl that had a freakish nose-talent and was made of wood!?). The lesson a kid could take from those stories of punishment might be merely that lying makes you the object of attention. The Washington story on the other hand teaches the same lesson but with a virtuous trigger behavior, x behavior—being a sap that hates trees but can’t bark a fib—earns you attention (even, gasp, the presidency!).

So what we end up with is a one way ratchet. Give child attention, behavior at time of attention will be amplified. Reward negative behavior with punishment-attention and you get more negative behavior; reward positive behavior with praise-attention and you get more positive behavior.

But wait, you are saying dear reader, Peter, your cynicism and cat manipulation have blinded you to the actual results of the study! The punishment stories did not encourage lying… punishment stories simply had no effect on behavior. I submit further cynicism in my defense. Perhaps the baseline (the control of no stories) that most kids operate on is that lying will gain you attention. And perhaps they’ve already been so saturated with this world-view that a couple of punishment stories won’t change much. The virtue story on the other hand is something new for these kids, and it momentarily spurs a change in the child’s understanding of what behavior will lead to the researcher rewarding them with attention.

My conclusion would be the same as Adam’s, we need more stories about virtue. But the reasons for that conclusion are a bit more Pavlovian. Now I’m going back to my cat-training (she “prays” like this on command):

Honor = Innovation?

On June 11, 2014June 11, 2014 By valkenburghIn Economics, PhilosophyLeave a comment

Sam’s characterization of honor (as a personal characteristic–honor type A–rather than a reward–honor type B) is honor as a public good. It’s costly to have honor and the benefits of honorable behavior are not internalized by the honorable individual. It’s a positive externality in need of subsidization. Sam’s subsidies are honors (the reward–honor type B), things like ribbons, monuments, songs etc. Sam finishes his excellent post with a cautionary meditation on the public versus private provision of these subsidies:

Describe quietly to yourself as you reflect on this the likely agency problems of the sovereign awarding honors. Compare that to private honors offered by people unencumbered by a principal-agent problem.

Sam’s right, we should carefully consider whether the public provision of honors is faithful to the stimulation of real honor, whatever we as principals think it to be. The problem Sam is describing neatly mirrors debates about intellectual property law. We have a public good—innovation—and we have a subsidy via signals—patents, copyrights and trademarks. The nut of the debate in IP policy is whether we are faithfully incentivizing science and art, or merely rewarding rent-seekers (the RIAA, MPAA, Big Pharma, etc.). And, just like private honors, we do have private rewards for creativity and innovation. Tenure is the most obvious, but we shouldn’t forget privately-funded contests like the X-prize, or soft rewards like the prestige of being a notable contributor to open-source software libraries or the power of a successful YouTube account. Let me leave that analogy between honor and innovation to percolate for a moment.

Adam chimes in suggesting that honors may not be incentives to honor so much as bits of information necessary to discover what is honorable.

What is honorable is not something we simply know the same way we know how to breathe. We learn what is honorable by, at minimum, using what is honored as a starting point.

In IP policy we often talk of both incentives and coordination. The inventor or artist needs both a goad and a direction. You can think of the subsidy policy as a vector: it has both magnitude (incentive to invent) and direction (coordination of what should be invented). Adam’s saying we may or may not need incentives for honor (and it is intuitive—as well as ancient—to say that honor is something you cultivate without reward) but he’s suggesting that we do need coordination.

Building on my IP analogy, I’d like to disagree (for the sake of conversation) with both Adam and Sam here. There is a school of thought in IP policy that says that most of the work of incentivizing and coordinating innovation is internal to the innovation itself. Von Hippel writes about “user innovators,” who invent and publicly release their inventions—i.e. provide public goods—because the fractional private benefit they obtain from invention-use is sufficient to stimulate the public good’s optimal social production. Similarly, first-mover-advantage and network-effects theories can also explain why innovation may need no external goad or coordination. I innovate because by being the first to do so I will more likely capture temporary monopoly rents (as competitors rush to imitate) or because if my product becomes the standard in a network (the Facebook to your Myspace) I’ll also capture rents.

Could honor have use value sufficient to stimulate optimal social production? Or, are there first mover advantages to an honorable person? Are there network effects to honor? If any of these questions deserves a yes (or even a maybe) then we have an economic theory as to why honor might be something that does not require external reward, i.e. honors. We have an economic theory explaining the Aristotelian intuition—honor is something you do without external reward. There are rewards internal to the behavior—especially in the long term—and no dire public good problem exists.

I’m not certain what exactly honor’s use-value, first mover advantage, or network effects would look like. My intuition tells me it’s basically stoicism or, perhaps, Taleb’s “antifragility.” Honor (or dignity) is a guard against anxiety, rash action, and—cumulatively—monoculture or herd behavior and the madness of crowds. People develop a personal bearing that, as Sam eloquently puts it, is “staid in adversity, durable against insult, and refuses to cower when threatened.” These are the traits that may cost you in the short run, but their use value—perhaps the psychic benefit of avoiding agitation—could be sufficient to warrant their adoption despite benefit spillovers. Or, similarly, they may enable you to reap some long term benefit from anti-fragility. As the crowd of lemmings goes over the cliff your once costly non-conformity has paid off big. Moreover, you cultivate this honor not because you can reasonably predict the realization of any of these rewards. Instead, it’s just something you do. As Taleb says,

Wear your best for your execution and stand dignified. Your last recourse against randomness is how you act — if you can’t control outcomes, you can control the elegance of your behaviour. You will always have the last word.

The essential nuance of a private “nope.”

On June 3, 2014 By valkenburghIn Philosophy1 Comment

This is my two cents on the ongoing talk about “no.” Particularly whether a “no” from a property owner is any different than a “no” from a government official (what Adam cites as the Bruenig objection).

First, there’s no “no” (or “noooope”) that is absolute (aside from technological/physical/biological impossibility), so what we are looking for is a difference of degree between private and public “no”s (not differences of kind). A government “no,” when it comes without due process or the rule of law, is a nasty, unpredictable thing, capable of running the gamut of degree from minor but insidious—“no you may not go 16 miles per hour over the speed limit, only 10, and only 5 if a police officer thinks you look suspicious because of the color of your skin”—to borderline genocidal—“no you may not utilize the civil justice system to defend your property, because you are Jewish”—and beyond—“no you may not live here; if you can’t leave, you may not live.”

Second, the private “no” is significantly less absolute than it may appear when judged without knowledge of the common law that has, in Anglo Saxon nations, organically defined the boundaries of all private “no”s.

Any refusal to obey a “no” might be damaging to the “no-er,” as much as any “no-ee” may be damaged by their obedience. This complex relationship—whether it involves strangers (as in tort law) or business partners (as in contract law)—has been negotiated, defined, and redefined in tribunals since at least the Romans (Sic utere tuo ut alienum non laedas, i.e. so use your own as not to injure another’s property). This is also Coase’s problem of reciprocal harm, and it’s become the backbone of nuisance law in this country today. The dentist and the the baker share a wall. Can the baker use loud mixers, thus denying the Dentist’s protestations and pleas for peace (his “no” noise) or can the Dentist enjoy his peace denying the Baker’s bread making?

Perhaps the most relevant common law “no-hedging” for this discussion is the very fascinating (can you tell I’m in the middle of Bar review?) Public vs. Private Necessity doctrine (in the tort law of trespass). The default rules of trespass are a resounding and strong “no!” No you may not enter another’s property without authorization. It don’t matter if you didn’t know you were trespassing; it don’t matter if you didn’t do any economic damage. Hey you kids! Get off my yard. This “no,” however, has a materially pronounced posterior; i.e. it’s got a big but.

One of the affirmative defenses to trespass (meaning the defendant must raise and prove her defense) is necessity. A school bus driver escaping a forest fire and a blocked-off mountain road can drive her bus right over my land and I cannot legally say “no.” The necessity (an emergency) negates the legal harm, and the property owner’s damages are what we snooty Epsteinian types like to call damnum absque injuria, or“a loss without a legally compensable injury.”

But the nuance of the common law’s “no” doesn’t stop there; it’s two pronged: (1) If the necessity is deemed “public” then it’s a full defense to trespass claims and subsequent damages. So if the bus is full of children and the driver is trespassing to save them, then there is no legal trespass, no damages nominal or pecuniary. (2) If, however, the necessity is deemed “private” then it will only excuse the trespasser from nominal damages. So if the escaping Partridge Family bus drives through a beautiful and rare shrubbery, the property owner can still claim economic damages and get compensation. This is what I mean by the nuance of a private “no.” The validity of any such “no” is subject to flexible standards and equitable defenses in common law.

Another added wrinkle: if the property owner tried a stronger “no,” if she tried to forcibly eject the sheltering trespassers (either the proverbial school bus of kids or the Partridges) she would be, in fact, liable, herself, under the law of torts for actively causing the trespasser’s peril to mature into harm. The famous case here is the delightfully-named Ploof v Putnam. Ploof and his family were boating when a storm struck. Unable to navigate to the lake-shore the Ploofs happened upon an island; they tied up on a stranger’s dock (Putnam’s dock) and huddled in the boat as the maelstrom bore down upon them. At this point, Putnam’s servant (who I like to think looked like Woodhouse from Archer) braved the violent winds and waves, walking down the pier to unceremoniously untie the sheltering Ploof vessel, sending the family careening into the crashing waves and the rocky cliffs beyond.

The Ploofs were injured and their boat destroyed. Later, in court, Putnam was found liable for damages caused by his servant’s “no” (all via the similarly interesting doctrine of respondeat superior, i.e. “let the master answer,” but that doctrine is some private “no” nuance we should leave for another day).

The larger philosophical lesson to take from all this legal ephemera is that private “no”s are non-monolithic, nuanced, and organically grown standards (unlike a dictator’s unpredictable whims). To borrow and extend a metaphor from Epstein, economists and political scientists tend to narrowly focus on steering the ship of state policy exactly where they think it should go (a utopic vision of one sort or another). What’s perhaps equally if not more important is that there are essential individuals inside that ship, shoveling coal, watching regulators and pressure valves, carefully maintaining the complicated mechanisms that keep the ship going, i.e. the valves that keep private “no”s equitable, just, efficient, and fair. In private law there are always lawyers, judges, juries, and relevant parties to be heard. I submit that public “no”s are of greater concern than private “no”s because while we may have plenty of daring ship captains barking orders and commands in the public sphere (aiming us at verdant shores of distributional justice or administrative safety) there are fewer public mechanics carefully watching the valves. The problem with public “no”s is process (administrative law is non-emergent, non-organic) not substance.