John Groenewegen

The quest for coherence between institutions and technologies in infrastructures

This article elaborates on the possible interrelations between the technical and institutional coordination of infrastructures. There is indeed a need for coherence between both in order to safeguard a satisfactory functioning in terms of economic performance, guarantee of public values and technical system integrity. It is argued that the ongoing discussion on the liberalization of various infrastructures focuses very much on institutional changes, including market restructuring towards competition and privatization. The technical repercussions of these institutional changes are often neglected. On the other hand, technological change might also have very fundamental consequences for organizations and institutions. Building on the idea of a co-evolution between institutions and technologies, we define very simplified technical and institutional coordination mechanisms. By comparing both, we are able to determine their coherence and relate this to infrastructure performance. In this way, we provide a novel attempt to relate institutional arrangements to the technical network-specificities of infrastructures. This offers a different perspective on the organization of these sectors and a new explanation of their performance. We illustrate our arguments by way of cases from the electricity and air transport sectors. Implications for theory and policy conclude this article.

Institutional design for complex technological systems

Complex technological systems like telecom, energy and transport infrastructures are subject to institutional (re)design. Institutions concern different levels of analysis like laws and regulations as well as contracts and organisations which regulate and coordinate the behaviour of actors in complex networks. In relation to technological and process design, we discuss how efficient and effective institutions can be designed according to structure behaviour in such a way that socially desired objectives are realised. After analysing the stabilising and instrumental role of institutions, we introduce a four-layer model, which offers the building blocks for identifying the steps to be considered in processes of institutional design. After having discussed the constraints in designing institutions, we present a generic model meant to be helpful in structuring the process of designing institutions in complex technological systems.

Assessing the potential of new institutional economics to explain institutional change: the case of road management liberalization in the Nordic countries

Like other network industries, construction and maintenance of transport infrastructure have also seen a recent trend towards liberalization, deregulation, re-regulation, and sometimes privatization. With respect to institutional arrangements, this change implies that previously vertically integrated state-owned enterprises have been replaced by more market, meaning private ownership and contracts together with regulation by an independent government agency. When economists discuss institutions, this is preferably done in terms of efficiency and equilibrium. We discuss Williamsons Transaction Cost Economics (TCE) and Aokis Comparative Institutional Analysis (CIA) as being two representative approaches of New Institutional Economics in which efficiency and equilibrium are central. What is the applicability of these two approaches to explain institutional change? The case of road management in Nordic countries provides the empirical evidence. We will draw conclusions as to the strengths and weaknesses of the two approaches and add suggestions to complement the efficiency approach, which allow for a more detailed level of analysis, in which also issues of political power are included.

The Governance of Network Industries

Infrastructures are subject to substantial readjustments of governance structures, often labeled as liberalization, privatization or re-regulation. This affects all traditional infrastructure sectors including communications, energy, transport and water. This study highlights and illustrates some of the major challenges for readjusting the governance of network industries from an economic, institutional, political and technological perspective. The three parts of the book address the institutional design of infrastructures, the role of technology in different sectors and actor behaviour.

Public values in the energy sector: economic perspectives

An overview is provided of public values from main perspectives constituting economic science, while examining how these perspectives deal with energy policy. Neoclassical and New Institutional Economics conceive governance and regulation as outcomes of cost minimising actors that operate in well defined environments. Public values are an issue in the case of externalities, public goods and natural monopolies. Original Institutional Economics makes the framework of analysis multi-disciplinary, an analysis of the shared mental maps, learning, and the distribution of power via institutions. The actions of actors are driven by individual motivation and embedded in a technical and social, economic environment.

Challenges for Readjusting the Governance of Network Industries

Infrastructures are subject to substantial readjustments of governance structures, often labeled as liberalization, privatization or re-regulation. This affects all traditional infrastructure sectors including communications, energy, transport and water. This study highlights and illustrates some of the major challenges for readjusting the governance of network industries from an economic, institutional, political and technological perspective. The three parts of the book address the institutional design of infrastructures, the role of technology in different sectors and actor behaviour.

Two perspectives on trading in radio spectrum usage rights: Coase and Commons compared

In this contribution, we address the introduction of private property rights and market trades in the use of the radio frequency spectrum. We discuss the UK case being inspired by the ideas of Coase. We discuss how an appropriate design of property rights and a secondary market would look like and how the developments after the introduction of property rights could be interpreted. Subsequently we present the alternative perspective of Commons to illuminate the implications of a Coasean perspective. It is shown how Coases focus is on efficiency, whereas in the world of Commons, the societal value is central. We discuss how the two perspectives can contribute to the understanding of the governance of the radio spectrum and conclude with policy recommendations.

Private equity leveraged buyout and public values: The bankruptcy of Eircom, Ireland

In 2008 the Delft University of Technology was commissioned by the Ministry of Economic Affairs of the Netherlands to investigate the potential impact of private equity leverage buy-out in the telecommunication sector on the public values that the government wished to safeguard. The study provided an extensive analytical framework and discussed three private equity leveraged buy-out (PE-LBO) cases: Eircom, Ireland; TDC, Denmark; and BTC, Bulgaria. The study concluded that PE-LBO funds make offers that cannot be refused by shareholders, boards and management. Hence, there is no check-and-balance in the form of corporate governance operative. As governments have relinquished control, the targeted firm is left to the ‘forces of the financial market’. The outcome is predictable: financial engineering aimed at a major redistribution of capital, totally contrary to the public interests and likely to end in bankruptcy. The research report was submitted May 2009 and the conclusions and recommendations became subject of controversy within the Ministry. As a consequence the report remained confidential for seven month. Friday, March 30, 2012 the Irish Times reported that Eircom had filed for bankruptcy in the High Court. The PE firm involved with TDC has divested almost all international activities, which accounted for approx. 40% of the revenues, and took a first step in offloading the company through an IPO in 2010. In Bulgaria, the failure of the incumbent to supply broadband has led to approx. 670 ISPs providing fiber based broadband throughout Bulgaria, providing data rates in excess of 10 Mbit/s per customer. In this contribution the authors of the original study provide a review of the study, assessing the new realities with a focus on the developments of Eircom, using TDC as a comparative case. This contribution is structured as follows: Section 2 provides the background to the study. In Section 3 a recap of the methodology applied in the original study is given. Section 4 provides the historical back drop for the PE-LBO development and derives the public values to be safeguarded. In Section 5 the operation of private equity leveraged buy-outs is explained. Section 6 provides the summary and conclusions of the two case studies Eircom and TDC. In Section 7 we assess the impact of PE-LBO for telecommunications policy purposes using the regulatory and developmental perspective. In Section 8 the conclusions are presented.

Value-Sensitive Design for Designers

In this paper we discuss the question how in the design of socio-technical system values can be taken explicitly into account (so-called value-sensitive design: VSD). In the introduction we present the concept of socio-technical systems: technology and institutions interact; private and public actors purposefully design technologies and institutions and are at the same time constraint by them. In its essence, values are incorporated in the design criteria. Sometimes as constraints – the design should conform to a certain value - but most often as goals – the design should try to maximise the beneficial effect on specific values. Central in this paper is the discussion of a practical analytical tool that can be helpful in the actual design process. To analyse the role of technology and institutions and how actors operate in such complex systems we make use of insights of institutional economics. A layered model is discussed in which the relations between the technology, the institutions and the actors are outlined. The core of the paper is the application of this framework in the so-called design cycle: a neutral analytical tool to compare the actual situation (what is the actual performance of the system?) with the desired performance (what is desired in the value system?). The design tool is illustrated with a case. Conclusions are drawn about the importance of value-sensitive design and the applicability of the design cycle as a neutral analytical tool that would be helpful in designing in a value-sensitive way.

Leviathans: Multinational Corporations and the New Global History

remains to be seen if Alan Garcia, the winner of the presidential election, has more success than Toledo. He has quickly attempted to create alliances to confront the Evo Morales-Hugo Chavez model of leftist populism. One of his steps has been to invite Chile to join the Andean community to offset Venezuelas departure. Finally, Enzo del Bufalos chapter on Venezuela documents how a country noted for its governance became highly unstable politically when the main political parties were discredited. Chavez has created a neo-populist regime that now dominates the electoral space. Oil is an underlying theme of the chapter and remains central to Venezuela and Chavez to this day. He consciously uses it to expand his influence and to support sympathetic regimes. Nonetheless, Venezuela continues to challenge the simple governance categories and its trajectory is complex, even if Chavezs likely re-election in 2006 goes as programmed. In sum, the book provides rich empirical, institutional detail for the complex story of the last decades in these Andean countries. Several themes could have used more treatment, for example, the role of indigenous movements in the countries and the continuing influence and power of the military and military expenditures in all of them. Nonetheless, reading the country studies will provide a tangible sense of how inadequately the Washington Consensus has performed and that the simple mantra of governance and electoral democracy does not provide a compelling understanding of the political reality of these Andean countries. While governance is certainly an important issue, its weak link to economic performance shows its limits. This is underlined by the richness of understanding of the political milieu provided by the country study authors.