Have you heard of the Coase Theorem? It was a series of ideas put forth by Robert Coase. It led to him receiving the Nobel Prize in Economics.
Thus, it is widely regarded among economists. Of course, this means little to me since they live in the world of theory.
What Coase proposed is no different. In fact, the practicality of it was not even questioned since most conclude it to be an impossibility in the real world.
That, however, might change as we further into the technological age. For this reason, we will start to look at this.
As an aside, I will state that I have not fully worked through what Coase proposed and modeled it into Web 3.0. That said, I am toying with different aspects to see how it could align.
There will likely be other articles in the future as my thinking evolves.
Can The Coase Theorem Of Economics Be The Key To Offsetting Job Loss?
What is Coase Theorem? That is difficult to explain in just a few sentences.
Basically we are dealing with a few major components. They are:
- property rights
- transaction costs
- bargaining
When these are combined, they forms the basis for a view of the economic system that could potentially be applicable in the future.
If we had to sum it up, it would look something like this: Coase Theorem asserts that bargaining between individuals related to property rights will lead to an optimal and efficient outcome, no matter what it is.
This sounds great in theory. The idea, in practice, leaves a bit to be desired. Most importantly is the transaction costs. Could this change because of AI?
It is one thing that I am working through.
For Coase Theorem to occur, markets have to be efficient with zero transaction costs. Here is where things go awry in the real world.
Obviously, when dealing with property rights, we are entering the legal realm. Here is where we see the basis of transaction costs take on additional meaning.
Transactional Costs
This is a lot more than simply the fees charged for conducting a transaction. When it comes to property, it entails all that goes into it.
We have to consider the direct costs such as acquisition, maintenance, defense, and security. If we apply bargaining, obviously adhere costs enter the picture. This includes costs such as legal and lobbying to deal with law surrounding property.
Then we have market inefficiencies. This can include difference in power along with differing goods. Perfect information is something that is also necessary.
From this list, it is easy to see why Coase Theorem, instead of a real world practicality was always viewed as a model to explain market inefficiencies.
But what if AI starts to change this? Here is where we have to take into account all the layers of activity and if the prospect of automation in the future.
If we arrive at an agentic internet, is it possible for asset, both virtual along with digital twins, to move us closer to this theorem?
Many are aware that humans tend to drive costs up. We know that human labor is usually the largest expense for most businesses. Replacing this will drive down the costs associated with many services.
For example, what if the legal system was tried by AI agents. They have access to all the bills that were signed into law. From this point, automated case occur leading to a feeless resolution.
Could we achieve a state of "perfect information" with AI? It seems hard to digest at the moment but with the pace of different forms of AI, it could be in the cards.
The natural fear with AI, beyond it destroying all of humanity, is the impact upon jobs. How do we counter this? Many look to UBI as the solution. This presents an externality, something that Coase discussed.
What if, through the technology, we had the ability to negotiate property rights, i.e. ownership of the means of production, in another way?
It is something to consider.
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