The distinction between objects and ideas is arguably the most important in economics. In a world with more people, each person has fewer objects but access to more ideas. So far, the benefit we derive from access to more ideas has far outweighed the disadvantage of fewer objects. People today have less arable land per capita, but still consume more food per capita because of all the ideas we have discovered and shared.
Most of the work on the economics of ideas has focused exclusively on a subset of ideas, technologies. Economists have been slower to acknowledge the complementary set of ideas, rules.
Here’s an update to the fish proverb that makes the point succinctly:
If you give someone a fish, you feed them for a day. If you teach someone to fish, you destroy another aquatic ecosystem.
New fishing technologies such as lines with hooks, nets, and trawlers (which people do teach each other) have been destroying aquatic ecosystems for thousands of years. To protect fisheries, we eventually tried rules like limits on the length of the fishing season, but these worked badly. Only recently have we discovered and tried better rules like tradable fishing quotas. They let us get the benefits from new fishing technologies without doing more harm to the environment. They encourage efficient fishing at sustainable levels. Sadly, they are still used in only a few fisheries around the world.
How do humans discover new rules? What determines where and when known rules are implemented? Why, in particular, do rules that clearly offer large Pareto benefits (or win-win benefits for everyone) so frequently fail to be copied and reused? Social scientists should pay more attention to questions like these about innovation in the space of rules. Practitioners who are optimists about the potential for discovery should work toward changes in rules, not just in changes in technologies.
The concept of a charter city has power because it can change the rate of innovation and adoption in the space of rules.
This post originally appeared on the NYU Stern Urbanization Project’s blog. To read the original post, click here.