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August § The Common Test / 2016-02-16 21:04:46
Robin § Unforgotten / 2016-01-08 21:19:16
MsFitNZ § Towards A Theory of Secondary Literacy / 2015-11-03 21:23:21
Jon Schultz § Bless the toolmakers / 2015-05-04 18:39:56
Jon Schultz § Bless the toolmakers / 2015-05-04 16:32:50
Matt § A leaky rocketship / 2014-11-05 01:49:12
Greg Linch § A leaky rocketship / 2014-11-04 18:05:52
Robin § A leaky rocketship / 2014-11-04 05:11:02
P. Renaud § A leaky rocketship / 2014-11-04 04:13:09
Jay H § Matching cuts / 2014-10-02 02:41:13

Valve and post-capitalism

I wish I had more time to do a thorough blogging and blockquoting of this, but alas: I’ll just say that this long post from Valve’s in-house economist is well worth your time if you’re interested in ways people work together—or ways they could work together—in the 21st century. (For the uninitiated: Valve is a hugely successful video game company that is increasingly well-known for its nonhierarchical, almost anarchist management structure.)

In particular, pay attention to the part where Yanis Varoufakis, the author, mentions the Coase theorem Ronald Coase’s theory of the firm. (Thanks, Mintie.) In short, Coase says: We establish firms to create zones where negotiation is no longer necessary. Or, in more technical language: …where transaction costs are lower. Imagine you want 1,000 quantum coils attached to 1,000 Zebulon drives. Instead of going through a whole market-based process and like, selecting the independent coil-attachment specialist with the lowest bid… you could just… tell someone who works for you to attach the coils to the drives. It’s easier. It’s faster. There’s less friction.

But the internet, broadly speaking, lowers transaction costs, right? Suddenly you’ve got, this super-efficient real-time market for coil-attachment services, and it’s like, you sign up and click two buttons and somebody’s coming over on a moped to attach all those coils and you don’t even have to worry about health insurance. That’s awesome, and thus your negotiation-free zone, your little island, gets smaller. This has been happening, over the past few decades, to all companies everywhere—even the very biggest. It’s not just the web that’s small pieces, loosely joined; it’s the whole economy.

There are just tons and tons of internet-based B2B (oh yeah I just typed that) market-makers that are hugely profitable precisely because of Coase’s theory of the firm—because they found a way to lower some transaction cost and shrink the size of those zones, in essence claiming some of that territory for themselves.

But even beyond that, there are ways to lower transaction costs inside a company, too—think of Microsoft Exchange and assure yourself that yes, there are still transaction costs here—and it turns out that’s one of the most interesting implications of Valve’s anarchy. I might write more about this later… in the meantime, read the piece.


Mintie says…

That’s not a great characterisation of the Coase Theorem – I think you’re getting confused with Coase’s work on the existence/nature of the firm? The Coase Theorem is actually reasonably succinctly explained on the wiki article you linked and hated – “The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.”

That is, regardless of who owns the rights to the lake, if it gets polluted, it should be cleaned up exactly the same way. The property rights alter who pays, but not how the externality is dealt with.

Hope that’s helpful!

That IS helpful, Mintie—thanks. Yeah, the reason the Wikipedia page was so confusing is… because… I was thinking of something totally different.

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