Chris Berg

Delegation and Unbundling in a Crypto-Democracy

Representative democracy consists of a chain of delegation from voters to the executive and a corresponding chain of accountability, with some questions (particularly constitutional questions) reserved for popular vote. This structure reflects the high transaction costs of coordinating preferences among a large and diverse population, which has in part been determined by technological limitations. A new technology, blockchain, significantly reduces transaction costs. This technology turns out to have significant implications for democratic governance. In a crypto-democracy, voters have contractual relationships that allow them to unbundle, delegate, re-rebundle and reserve their voting power. Rather than planning our democratic structure and thus restricting opportunities for political exchange, the use of blockchain in a crypto-democracy allows us to ‘grow’ a democracy in a Hayekian framework.

The Institutional Economics of Identity

Identification forms a key part of all but the least sophisticated economic and political transactions. More complex or significant transactions demand more formal identification of the parties involved. In this paper we develop an institutional as well as a public choice theory of identity. We distinguish between a Demsetzian evolutionary view of identity and a ‘legal-centric’ view of identity. In the former view, identity is contextual, fluid and subjective. In the latter, identity is uniform and permanent. Governments have an interest in identity insofar as identity is used in the process of tax collection and welfare provision (and previously conscription). Private organisations free-ride off state-provided identification services. The paper concludes with a discussion about technological change and identity management. We characterise two possible futures: one in which blockchain and related technology enables states to create more comprehensive uniform identities, and one in which these technologies enable identities to be ‘self-sovereign’ and transferred to citizens.

Subjective Political Economy

Ideas fit poorly into the economics of political systems. This paper provides a new, highly-adaptable framework for analysing the role of ideas in political change. Starting with Djankov et al’s (2003) institutional possibility frontier, in which institutional choice is depicted as a trade-off between disorder costs and dictatorship costs, we observe that costs are subjective to the political actor that perceives them. Long-run institutional changes can be seen as the result of perceived changes in these costs. The paper then looks at political bargaining between actors with different subjective institutional possibility frontiers, how subjective costs help us understand institutional innovation, and the role of uncertainty and ignorance in creating follower-leader dynamics in political systems. By integrating ideas into the economic analyses of politics we create the foundations of a subjective political economy.

A Classical Liberal Approach to Privacy

This chapter presents a classical liberal approach to understanding privacy. There are a near infinite array of definitions and approaches to privacy, beginning with Alan Westin’s information control theory. The chapter briefly surveys some of the critiques of Westin’s approach and presents an ‘information exchange’ model, where control over personal information is analogized to property rights. Unwanted privacy violations can be considered the expropriation of economically valuable information. The chapter then explores the range of institutional possibilities available to control these expropriations using the institutional possibility frontier framework.

The Ancient Home

This chapter explores how privacy was understood in the prehistoric and ancient world. Many historians have emphasized that ancient ideas of privacy were distinct from modern ideas of privacy. The chapter considers that question through the lens of the home—how dwellings provided a barrier between the public space and private domain, and how spaces within the home were structured to expose or protect inhabitants from each other. Beginning with the first dwellings—pit houses in the Neolithic era—the chapter traces the development of single room homes through to complex Athenian and Roman houses. The chapter argues that while the ancients’ ideas of privacy were different to ours they were not as sharply opposed as some scholars have suggested. In the ancient world as much as the modern, the ability to protect personal privacy is a function of wealth and prevailing technologies.

The Origins of Modern Privacy

This chapter considers the origins of privacy in the early modern era. It contrasts an earlier historical consensus around the early modern development of individualism, home privacy, and interiority with recent scholarship that argues these ‘modern’ notions of privacy were both more ambiguous and came later. Rather than focusing on the growth of individualism as a basis for privacy, the chapter looks at the creation of the unitary nuclear family. In the early modern era families became more concrete and private. Yet the removal of family life from social observation also meant that subjugation within the family—such as that defined by the ‘separate spheres’ doctrine—could result in undesired privacy, particularly for women.

Privacy, Property, and Discovery

This chapter considers the institutions of control of personal information used by private firms. The chapter begins by considering the EU’s General Data Protection Regulation (GDPR), which became enforceable in 2018. The GDPR is the most ambitious attempt to regulate the use of personal data and provides consumers with a range of rights about how data may be used and how consumers might withdraw their consent for data use. However, the regulatory approach taken by the GDPR falls far short of a property rights regime in personal data, preventing consumers from exploiting and monetizing information about themselves. The chapter contrasts this approach with an evolutionary approach, focused on case-by-case legal change and emphasizing education, empowerment, and enforcement of existing laws.

Some Economic Consequences of the GDPR

The EU General Data Protection Regulation (GDPR) is a wide ranging personal data protection regime of greater magnitude than any similar regulation previously in the EU, or elsewhere. In this paper, we outline how the GDPR impacts the value of data held by data collectors before proposing some potential unintended consequences. Given the distortions of the GDPR on data value, we propose that new complex financial products—essentially new data insurance markets—will emerge, potentially leading to further systematic risks. Finally we examine how market-driven solutions to the data property rights problems the GDPR seeks to solve—particularly using blockchain technology as economic infrastructure for data rights—might be less distortionary.

A Genuine Commercial Justification for Interchange Fees

Ronald Coase famously argued that “if an economist finds something – a business practice of one sort or other – that he does not understand, he looks for a monopoly explanation”. So it is with credit card interchange fees. Intellectual confusion has led to the phenomenon of interchange fees being misdiagnosed as being a monopoly problem leading to inappropriate policy intervention. Following George Stigler’s path breaking analysis of the US Security and Exchange Commission he claimed that financial regulation was “founded upon prejudice and…reforms are directed by wishfulness”. In our opinion, Australian regulatory attitudes towards interchange fees should be placed into the same category: reforms initiated by ignorance and anti-bank prejudice.

Identity as Input to Exchange

Identity is an integral part of all but the most trivial economic, social and political transactions. Using transaction cost economics, we determine that identity costs are a distinct and measurable subset of transaction costs. In certain transactions, such as credit arrangements, identity costs are incurred at considerable expense for commercial and compliance based reasons. Vertical integration can be seen through the lens of identity cost economizing, including in the financial sector, due to high costs of complying with KYC regulations as well as commercial risk management. Such organisational structure is also contingent on available identity technologies. The introduction of blockchain and distributed ledger technologies in identity applications may see new models of institutional structures develop.