Endogenizing Technological Change: a measurement cost view

Keywords: measurement costs, technological change, property rights

JEL classification: D23, L14

Endogenizing Technological Change: a measurement cost view

The economic analysis of technological change has found important contributions based in the neoclassical theory of the firm. The main argument proposed and exhaustively tested in the literature, is that the dynamics of technology change responds to price incentives. As the price of labor increases, labor saving technologies are expected to evolve.

The present study proposes a different perspective, based on the measurement cost branch of the transaction cost literature, as developed by Barzel (1997, 2002). Under these lenses the incentives to the players are based on the existence of value generated in joint production efforts. In order to engage in production efforts, agents are expected to observe the mechanisms of protection of property rights.

Barzel argues that property rights can be protected by the state (legal rights), or by private mechanisms (economic rights). Unprotected value remains in public domain, therefore being subject to capture at no cost. Value can also be subject to capture, however at positive costs, in situations of failure in legal and economic mechanisms of protection. As a result, agents are expected to observe how both economic and legal rights perform. The model developed by Barzel considers the existence of a given production technology, meaning that variability of inputs and outputs is given. Moreover, the property rights approach assumes that measurement technology is also given, so that the incentives for capture are determined.

The present paper explores the incentives to change and/or adopt new technologies of production and of measurement. In order to accomplish this goal the paper explores four directions. Initially, it assembles two property rights models. The first is a simplified conceptual model that proposes the existence of a property rights index, defined as the proportion of unprotected on the total protected value (Zylbersztajn, 2010). The index defines the incentives of players to protect/capture value and to engage in joint production efforts. The second is a heuristic model which considers explicitly the costs of capture and protection as elements that determine the strategies of players (Monteiro and Zylbersztajn, 2012). The second part of the paper examines technology as a shifter parameter of the models, exploring how it affects variability, and consequently the ability to capture value. Part three explores technological change as an endogenous variable, observing the effects of alternative production and measurement technologies on the incentives to protect value. Based in the fact that alternative technologies have impacts on strategies, we discuss the incentives to promote technological change and/or to adopt existing technologies, both in production (based on the effect on homogeneity of attributes) and in measurement (based in the reduction of costs to measure) of attributes. Part four presents examples of efforts to develop technologies and adoption of existing measurement technologies. Part five concludes.

References:

Barzel,Y.1997. The Economic Analysis of Property Rights. Cambridghe University Press.

Barzel,Y. 2002. A Theory of State: Economic Rights, Legal Rights and the Scope of the State.

Monteiro, G.F. A. and Zylbersztajn,D. 2012. A Property Rights Approach to Strategy. Strategic Organization, forthcoming.

Zylbersztajn,D. 2010. Fragile social norms: (un)sustainable exploration of forest products. International Journal of Food System Dynamics, v. 1, n.1, pp. 46-65.