From: hughes@ah.com (Eric Hughes)
Date: Mon, 4 Apr 94 11:34:49 PDT
To: cypherpunks@toad.com
Subject: Economic assumptions
Message-ID: <9404041821.AA08128@ah.com>
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I just read (after a reference by Duncan Frissell on this list) an
essay by Nobel-prize economist R. H. Coase.  The essay is called "The
Nature of the Firm".  I have it in a collection called _The Firm, the
Market, and the Law_, published by University of Chicago Press.

This is a sure-fire antidote to the idea that "the market is the best
solution for everything".  This is the essay, evidently, that
introduced the idea of transaction costs.  Some of his basic points
are the following:

-- There is a cost to using the price mechanism.
-- Not all economic allocations use the price mechanism.
-- Firms exist because they have lower transaction costs than the market.

I can imagine that bandwidth in the fibersphere for text transmission
will be too cheap to meter, which means that the cost of metering
would more than the marginal revenue.  In this case, and this is not
the near future, there aren't any delivery charges per message.

Suppose 5 billion people are all typing continuously at 300 bps.
That's 1.5 Tbps, certainly within the conceivable for a single
transmission line.  So that's everything everyone in the world types,
delivered at flat rate to your computer.  

The assumption of scarcity for bandwidth, while true now, may not
generalize to the future.  We should also not assume that every
commons is subject to the tragedy of overuse.

Eric