This essay compares the analysis of economic governance done by Nobel Prize winners Dr. Elinor Ostrom and Dr. Oliver Williamson with the Internet addressing and routing system.
Earlier this week, the 2009 Nobel Prize in Economic Sciences was awarded jointly to Dr. Elinor Ostrom of Indiana University's Department of Political Science, and economics professor Dr. Oliver Williamson of the University of California at Berkeley. Both were recognised for their pioneering analysis of economic governance. Dr. Ostrom demonstrated how common property can be successfully managed by user associations and Dr. Williamson has developed a theory where business firms serve as structures for conflict resolution. Their approach, which some have described as an evolutionary perspective on economic systems, suggests that various economic institutions and processes that shape our everyday world are the results of long-term, economic lessons learnt over decades or centuries by trial and error.
The analytical approach exemplified by Ostrom's and Williamson's works provides a uniquely valuable perspective for understanding the current situation in Internet addressing and routing. Like many economic institutions, the current TCP/IP-based system of addressing and routing is the product of several generations of adaptation to a core set of problems. The main problem in Internet addressing is how to accommodate an ever-growing population of increasingly restive and diverse participants given the constraints of successive generations of network technologies. As with other long-standing economic institutions, an accretion of informal norms and institutions developed around the critical technical resources at the heart of TCP/IP. They developed as different protocol users and other beneficiaries came to recognize both the private benefits that each derived from access to interoperable IP addresses and routing systems, as well as the shared vulnerability that all face to the dangers of over-provision, under-provision, misuse, and/or exhaustion of those resources.
As with virtually all other hybrid economic systems, the mix of technologies and institutions that constitute the TCP/IP-based Internet has also had to adapt an ever-shifting and expanding mix of ancillary challenges. These range from the emergence of highly capable crimonals to the accommodation of new participant groups with radically different technological requirements and norms of decision making. Today the Internet also faces the far rarer and more profound challenge of navigating a fundamental discontinuity, in the integration of a new addressing format (IPv6) that is fundamentally incompatible with the addressing standard that binds the rest of the Internet together into a largely seamless global-scale technical platform.
No doubt Dr. Ostrom and Dr. Williamson might have a great many interesting and insightful things to say about the Internet's looming moment of truth. Based on my own interpretation of their work and (avowedly limited) study of institutional and transition costs economics more generally, a few key points come to mind. First, it is clear that the informal institutions that support the successful management of "common pool resources" -- things like IP addresses and routing system carrying capacity -- tend to be more vulnerable to degradation from a broader range of causes than are generally problematic for the contractual and legalistic mechanisms that give shape to private property and markets. However, in some cases efforts to subsume the former under the latter arrangements create as many (if not more) serious problems than they solve. When the shared domain involves some sort of "network effects" and/or functionally indivisible resource (think the Internet's routing system, etc.), one possible result is a "tragedy of the anti-commons" -- i.e., a progressive loss of functionality that is neither susceptible to market remedies nor, in many cases, to the informal management mechanisms that had been effective in the past.
One other lesson is also crystal clear. The disintegration of a common pool resource through privatization is almost always a one-way trip (with the only historical counterexamples involving reintegration by force). It is, therefore, wise to make very certain that there is a welcome destination at the end before embarking down that path.