Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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So this situation is this:

1. We have a group of people who arrive in a new land over which no one else has any claims.

2. The group views all members as having been created equal and wishes to establish a society in which each citizen is endowed with the rights of life, liberty, and the pursuit of happiness.

3. The initial environment is one of free markets and anarchy (or autarchy).

4. The people agree to establish a government that will serve only to uphold the rights of the people -- life, liberty, and the pursuit of happiness -- and nothing more.

The first role of government should be to establish laws and infrastructure to support a civil society. What I mean by civil society is an environment that facilitates civil relationships among the people in a population. It turns out that the phrase civil society has a formal definition (from Wikipedia):

Civil society is the arena outside of the family, the state, and the market where people associate to advance common interests. It is sometimes considered to include the family and the private sphere and then referred to as the "third sector" of society, distinct from government and business.

Regardless of whether I use my definition or the formal definition, the role of government that would facilitate a civil society would be similar: to establish and enforce a set of laws and infrastructure that provides accountability and justice – both civil and criminal -- for the people and establishes and protects property rights.

Obviously “to establish and enforce a set of laws and infrastructure” is extremely vague. What I wish to do at this point in the discussion (or monologue, since I don’t hear anyone else talking while I write) is establish the very basics. I will provide greater detail later in the discussion.

Being held accountable means that when Individual A makes a promise to Individual B to do something (in other words, the two individuals enter into a contract or agreement), then if Individual A fails to keep the promise, Individual B has a means to force Individual A either to follow through on the promise or to compensate Individual B for the lack of follow-through.

Accountability substitutes for trust. It enables people who know nothing about one another (e.g., their honesty or reliability) to enter into agreements and be able to rely on the fact that the agreement will be fulfilled. Without accountability, only a small fraction of the transactions that otherwise might take place will occur, only those transaction in which the value of the deal is low enough that accountability doesn’t matter, or those transactions in which the parties involved have a past relationship of trust.

A system of civil and criminal justice would try people accused of infringing on someone else’s liberty or on his pursuit of happiness and punish them when found guilty.

A system of property rights would cover all types of property, including (from Wikipedia)

  • Real Property: The combination of land and any improvements to or on the land,
  • Personal Property: Physical possessions belonging to a person,
  • Private Property: Property owned by legal persons or business entities,
  • Public Property: State owned or publicly owned and available possessions, and
  • Intellectual Property: Artistic creations, inventions, etc.

From an ideological standpoint, that government protect people’s property rights was particularly important to our Founding Fathers. As Rick Lynch notes in “Property Rights, Freedom, and the Constitution”:

…the words of the Framers reveal that the most sacred, the most important, and the most politically relevant of all our natural rights, the right most in need of protection, and the right that most allows man to realize self-determination and to be truly free is the right to keep the money (property) that he has earned. The Framers’ obsession with safeguarding property led them to write about this one right in The Federalist Papers nine times as often as they did voting rights, speech rights, privacy rights, religious rights, and press rights combined.

From an economic standpoint, that government protect people’s property rights has been found by Peruvian economist Hernando de Soto to be one of the most definitive characteristics of economically successful nations:

What the poor majority in the developing world do not have, is easy access to the legal system, which, in the advanced nations of the world and for the elite in their own countries, is the gateway to economic success. For it is in the legal system where property documents are created and standardized according to law. That documentation builds a public memory that permits society to engage in such crucial economic activities as identifying and gaining access to information about individuals, their assets, their titles, rights, charges and obligations; establishing the limits of liability for businesses; knowing an asset’s previous economic situation; assuring protection of third parties; and quantifying and valuing assets and rights. These public memory mechanisms in turn facilitate such opportunities as access to credit, the establishment of systems of identification, the creation of systems for credit and insurance information, the provision for housing and infrastructure, the issue of shares, the mortgage of property, and a host of other economic activities that drive a modern market economy.

Continue to Part 4

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