Wednesday, August 31, 2005

Law and Economics and Code

My most interesting class by far this semester looks to be Law and Economics. Today, the professor used government-imposed minimal standards for apartments as an example of how interference with the market leaves both buyers and sellers worse off. Economics 101 teaches that when sellers costs are increased like this, the price of the product will increase, and consumers that believe those features are worth the extra money will get what they would have paid for anyway, while those that don't will be forced to spend money on something they would have rather spent on something else.

As a liberal free software geek, I'm torn about where to side on these kinds of issues. My liberal instincts nudge me toward feeling that this argument incorrectly assumes that local apartment markets are efficient; in my experience, there can be an extremely large range in the quality and price of urban apartments, enough so that what seems like one market of 60 landlords can actually be more like 20 markets of three landlords offering different kinds of products. And this isn't a response just to the apartment problem; trends like the skyrocketing pay of corporate CEOs, the increasing domination of American retail industries by a single provider (Walmart/Starbucks/Blockbuster), and the increasingly obvious effectiveness of corporate lobbying all point to an American economy that sits far, far from perfect efficiency, and which cries out for protection from monopolies.

At the same time, free software actually provides a powerful example of the productivity of markets that are governed purely by supply and demand (as Paul Graham has recently written), once you're willing to think of developers as consumers who are trying to decide where to spend their coding talents/time. Given the freedom to work wherever they think their time is best spent, as opposed to where supervisors/executives/Microsoft think their time is best spent, amazing increases in productivity are possible (not that I think the primary value of open-source is in its development methodologies, as ESR does... but there's no denying that its development methodologies are efficient).

So should authorities interfere in the activities of the little people? Based on the above, I'm half-tempted to answer, "Yes, unless the little person is me." But the real solution, unsuprisingly, probably lies in the GPL, which does place restrictions on developers, in exchange for certain protections. But extending the analogy that far will have to happen some other day.

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