“Sharing Nicely”;

On shareable goods and the emergence of sharing as a modality of economic production

Yochai Benkler

Abstract

The paper offers a framework to explain large scale effective practices of sharing
private, excludable goods. It starts with case studies of distributed computing and
carpooling as motivating problems. It then suggests a definition for “shareable goods” as
goods that are lumpy and mid-grained in size, and explains why goods with these
characteristics will have systematic overcapacity relative to the requirements of their
owners. The paper then uses comparative transaction costs analysis, focused on
information characteristics in particular, combined with an analysis of diversity of
motivations, to suggest when social sharing will be better than secondary markets to
reallocate this overcapacity to non-owners who require the functionality. The paper
concludes with broader observations about the role of sharing as a modality of economic
production as compared to markets and hierarchies (whether states or firms), with a
particular emphasis on sharing practices among individuals who are strangers or weakly
related, its relationship to technological change, and some implications for contemporary
policy choices regarding wireless regulation, intellectual property, and communications
network design.

I. Introduction

The world’s fastest supercomputer and the second largest commuter

transportation system in the United States function on a resource- management model that
has not been well specified in contemporary economics. Both SETI@Home, a distributed
computing platform involving the computers of over four million volunteers, and
carpooling, rely on social relations and an ethic of sharing, rather than on a price system,
to mobilize and allocate resources. Yet they coexist with, and outperform, price-based
and government-funded systems that offer substitutable functionality. Neither practice
involves public goods, network goods, or any other currently-defined category of
“quirky” goods as either inputs or outputs. PCs and automobiles are privately owned,
rival goods with no obvious demand-side positive returns to scale when used for
distributed computing or carpooling. 1 The sharing practices that have evolved around
them are not limited to tightly knit communities of repeat players who know each other
well and interact across many contexts. They represent instances where sharing2 is either

1
Computers as communications devices do have demand side returns to scale, or network externalities, but
in the SETI@Home example, what is used by the project is the pure processing power of the PCs, whose
intrinsic value is paramount.
2
“Sharing” is an uncommon usage in the economics literature, though it is common in some of the
anthropology literature. I choose it because it is broader in its application than other, more common but
also narrower terms for associated phenomena—more importantly, “reciprocity,” or “gift.” I hesitate to use
“reciprocity,” because of its focus on more or less directly responsive reciprocated reward and punishment
as a mechanism to sustain cooperation—in the teeth of the standard assumptions about collective action.
See Dan Kahan, The Logic of Reciprocity: Trust, Collective Action, and Law Yale Law School Public Law

1
utterly impersonal or occurs among loosely affiliated individuals who engage in practices
that involve contributions of the capacity of the ir private goods in a pattern that combines
to form large scale and effective systems for provisioning goods, services, and resources.

This paper seeks to do two things. First, I define a particular class of goods as
“shareable goods” that systematically have excess capacity, and combine comparative
information costs and motivation analysis to suggest that this excess capacity may better
be harnessed through social sharing relations than through secondary markets. Second, I
explain how the observation about shareable goods meshes with the literature on social
norms, social capital, and common property regimes, and with my own work on peer
production, to suggest that social sharing is an underappreciated modality of economic
production, parallel to market and state-based production, 3 whose salience in the
economy is sensitive to technological conditions.

Shareable goods are goods that are (a) technically “lumpy” and (b) of “mid-
grained” granularity. By “lumpy” I mean that they provision functionality in discrete
packages rather than in a smooth flow. A PC is “lumpy” in that you cannot buy less than
some threshold computation capacity, but once you have provisioned it, you have at a
minimum a certain amount of computation, whether you need all of it or not. By
“granularity” I seek to capture (1) technical characteristics of the functionality producing
goods, (2) the shape of demand for the functionality in a given society, and (3) the
amount and distribution of wealth of that society. A particular alignment of these
characteristics will make some goods or resources “mid-grained,” by which I mean that
there will be relatively widespread private ownership of functionality-producing goods
that systematically exhibit slack capacity relative to the demand of unit owners for their
functionality. A steam-engine is large- grained and lumpy. An automobile or PC is mid-
grained in the United States, Europe, and Japan, but large-grained in Bangeladesh.

and Legal Theory Research Paper No. 31, Center for Law, Economics and Public Policy Reesearch Paper
No. 281. Given the presence of purely redistributive practices like tolerated theft or demand sharing in the
anthropology literature, see infra, note 79, the presence of evidence of non-reciprocal pro-social behavior,
see Bruno S. Frey and Stephen Meier, Pro-Social Behavior, Reciprocity, or Both? Institute for Empirical
Research in Economics, Zurich, Working Paper No. 107 (Feb 2002), and more generally our intuitive
experiences of acts of humanity towards others whom we will never encounter again, I suspect that there
some forms of redistribution are non-reciprocal except in the broadest sense of the reciprocation of living in
a humane society. Mutual aid and cooperation without the possibility of reciprocal exchange likely exists,
the Lion and the Mouse fable notwithstanding. See, e.g., James Woodburn, Sharing is not a form of
exchange, in C.M. Hann, Propery Relations, Renewing the Anthropological Tradition (1998). I hesitate to
use the term “gift-exchange” because the highly developed gift literature, see infra note 5, has focused very
heavily on the production and reproduction of social relations through the exchange and circulation of
things. As will soon become clear, I am concerned with the production of things and actions/service valued
materially, through non-market mechanisms of social sharing. “Sharing”, then offers a less freighted name
for evaluating mechanisms of social-relations based economic production.
3
In this, my position tracks the tripartite mapping of the universe of organizational forms that resulted from
the work on non-profits in the early 1980s. See Henry Hansmann, The Role of Non-Profit Enterprise, 89
Yale L. J. 835 (1980); Susan Rose-Ackerman, The Economics of Nonprofit Institutions, 3-17 (1986);
Burton A. Weisbrod, The Nonprofit Economy 1-15 (1988). Unlike the nonprofit literature, my focus is
outside the boundaries of firms —whether for- or non-profit—on sharing among individuals in informal
associations more resembling markets in the price-based economy than firms. Both tripartite divisions,
unsurprisingly, follow Hegel’s framing of the market, the state, and civil society.

2
Reallocating the slack capacity of mid-grained goods—say, the excess computer cycles,
or car seats going from a to b—becomes the problem whose solution can be provided by
secondary markets, sharing, or bureaucratic management. I offer reasons to think that
sharing may have lower transaction costs, improve the information on which agents who
own these resources act, and provide better motivation for clearing excess capacity.

In particular, both markets and (firm or state) bureaucracies require crisp

specification of behaviors and outcomes. Crispness is costly. It is not a characteristic of
social relations, which rely on fuzzier definitions of actions required and performed, of
inputs and outputs, and of obligations. Furthermore, where uncertainty is resistant to
cost-effective reduction, the more textured (though less computable) information typical
of social relations can provide better reasons for action than the persistent (though futile)
search for crisply computable courses of action represented by pricing or managerial
commands. Moreover, social sharing has the capacity to capture a cluster of social and
psychological motivations that are not continuous with, and may even be crowded out by,
the presence of money. Social sharing, particularly whe n it pools large numbers of small
scale contributions to achieve effective functionality—where transaction costs would be
high and per-contribution payments must be kept low—is likely to be achieved more
efficiently through social sharing systems than through market-based systems. It is
precisely this form of sharing—on large scales, among weakly connected participants, in
project-specific or even ad hoc contexts—that is my central focus.

Social sharing is becoming a common modality of producing valuable desiderata

at the very core of the most advanced economies—in information, culture, education,
computation, and communications sectors. Free software, distributed computing, ad hoc
mesh wireless networks, and other forms of peer production offer crisp examples of such
large-scale, measurably effective sharing practices. I suggest that the highly distributed
capital structure of contemporary communications and computation systems is largely
responsible for the increased salience of social sharing as a modality of economic
production in that environment. By lowering the capital costs required for effective
individual action, these technologies have allowed various provisioning problems to be
structured in forms amenable to decentralized production based on social relations, rathe r
than through markets or hierarchies—whether state or firm-based. 4 While recently
gaining in salience as a modality of economic production at the core of the advanced
economies, sharing is hardly a new social phenomenon. 5 The claim is not, therefore, that
4
This is different from capital intensity. The activity may be capital intensive—like distributed
computing—when you consider the total capital cost of the computers, networks connections etc. required
for an effective unit of production, by comparison to labor. The capitalization is, however, highly
distributed, which is the key characteristic that enables individual agency in the production process.
5
The anthropological literature on sharing and the gift has been vast, starting with Bronislaw Malinowski’s
Argonauts of the Western Pacific (1922) and Marcel Mauss, The gift; forms and functions of exchange in
archaic societies (1925) (trans. 1954). A combination of a broad intellectual history and a major
contemporary contribution to this line is Maurice Godelier, The Enigma of the Gift (1997); see also James
G. Carrier, Property and Social Relations in Melanesian Anthropology, in Hann, supra, note 2 (providing
brief intellectual history of the literature); C.M. Hann, Introduction, in Hann, supra, note 2, at 23-34
(providing same). As an alternative antithesis to the competition of all against all model of human society,
an early manifestation of a focus on mutual aid and cooperation as a possible path for contemporary
societies was Peter Kropotkin, Mutual Aid (1902).

3
we live in unique moment of humanistic sharing. It is, rather, that our own moment in
history suggests a more general observation: that the technological state of a society, in
particular the extent to which individual agents can engage in efficacious production
activities with material resources under their individual control, affects the opportunities
for, and hence the comparative prevalence and salience of, social, market, and state
production modalities. The capital cost of effective economic action in the industrial
economy shunted sharing to its economic peripheries—whether to households in the
advanced economies, or to the kinds of global economic peripheries that are the subject
of the anthropology of gift or the common property regimes literatures. The emerging
restructuring of capital investment in digital networks—in particular the phenomenon of
user-capitalized computation and communications capabilities—are at least partly
reversing that effect. My claim is not, of course, that technology determines the level of
sharing. But it does set threshold constraints on the effective domain of sharing as a
modality of economic production. Within the domain of the efficaciously feasible, the
actual level of sharing practices will be culturally driven and cross-culturally diverse.

The policy implications of recognizing the relative importance of sharing-based

solutions to economic problems are significant. In the immediately foreseeable future,
we can see that radio and communications technologies have reached a point where our
policy focus should be on how to build an institutional framework that facilitates markets
in shareable goods—wireless devices and systems—rather than imposing regulatory
prohibitions on whole classes of systems and devices in order to create markets for
reselling wireless transport capacity generated by large-grained systems like those that
typified twentieth-century radio systems. The music copyright debate around peer-to-
peer file sharing can also be explained in terms of the change in the type of goods used in
distribution, from large-scale capital goods to mid-grained shareable goods. Understood
in these terms, solving this problem by squelching peer-to-peer sharing becomes
implausible—both descriptively and prescriptively. In addition to its possible effects on
formal policy, recognizing the systematic availability of sharing as a mode of structuring
productive cooperation offers a new solution space for engineers concerned with
designing services that require cooperation, and can inform long-standing debates into
problems such as the introduction of per-packet pricing into the internet protocol.

Yet current policy analysis largely disregards how institutional changes will affect
existing or emerging practices of sharing that may substitute for, or compete with market-
based production. If indeed we live in an economic system made up for price-based,
state-based, and sharing-based modalities of production, if it is true that optimizing our
institutional system for price-based production undermines productivity in the sharing
modality, and if it is true that our communications, computation, and information sectors
are undergoing such a technological change, then we are making systematically mistaken
decisions not on the peripheries of our economies and societies, but at their very engines.

II. Case Studies: Carpooling and Distributed Computing

The two motivating case studies share the following characteristics. First, they
involve large scale sharing practices among individuals who are either only weakly
related along other social dimensions, or complete strangers. Second, they involve

4
sharing of private economic goods, owned by individuals for their own use. Third, in
each case, there exist market models through which the excess capacity of these private
goods could be, and sometimes is, cleared. Fourth, the output of the sharing practice in
both cases is a rival good—it could be put to uses other than those that the participants in
the sharing practice have put it to, and their using it for one purpose rivals the availability
of the particular units shared to pursue other practices. In these characteristics car
pooling and distributed computing are like peer-to-peer networks, or ad hoc wireless
mesh networks, or like the labor individual programmers put into free software
development. They provide us with a basic context through which to begin to work
towards an understanding of the micro- level motivations and transactional characteristics
that underlie the use of these social sharing systems, rather than the available,
substitutable market mechanisms.

Carpools

Carpooling is the second largest commuter transportation system in the United

States. It accounts for one-sixth to one-eighth of work-related trips (17% to 12% of trips,
depending on study)—twice as much as all other modes except solo driving (75.4%)
combined. 6 In the United States, carpooling came to prominence during World War II,
when oil and rubber shortages made car-sharing a policy goal. 7 It re-appeared as a
national priority in the mid-1970s, responding to the oil crisis, but appears to have been
on a declining trajectory since 1980 8 — declining from 19.7% to between 12% and 16.8%
in 2000-2001. 9 Despite its contraction, carpooling remains much more significant than
public transit, which accounts for only 3.7% of work related trips. Transit use drops even
further to 1 or 2 percent for non-work related trips, while carpooling rises to account for
over 50%. 10 Because non-work related carpools often are comprised only of family
members, and I am concerned primarily with non- intimate social sharing practices, I
focus here on work-related carpools, where a majority of sharing appears to occur among
non-household members. 11

The most important characteristic of carpooling from the perspective of the

present paper is that money or explicit barter may be present or absent, and money, where

6
John Pucher & John L. Renne, Socioeconomics of Urban Travel: Evidence from the 2001 NHTS, 57
TRANSPORTATION Q., at *? tbl. 3 (forthcoming?) (2003).
7
Erik Ferguson, The Rise and Fall of the American Carpool: 1970-1990, 24 Transportation 349, 349
(1997).
8
Id.
9
According to Census data, the number is approximately 12% . See Pucher & Renne, supra note 6 at *4 tbl.
1 (citing U.S. Decennial Census, Supplemental Survey: Journey to Work, various census years, 1960 to
2000, as tabulated by Alan Pisarski and reported in A LAN PISARSKI, COMMUTING IN A MERICA III (2003))
According to NHTS data, the decline was more moderate, to 16.8% of more clearly commute-related trips,
defined as trips in urban areas for distances shorter than 75 miles. See Pucher & Renne, at 8.
10
Id., Pucher & Renne, supra note 6, Table 3.
11
How large a majority is not entirely clear. Pucher & Renne, claims that “family members are often
passengers on car trips for shopping, recreation, church, and school, while they seldom accompany each
other to work.”), supra note 6, at 10. An older study reported that more than 40% of work-related carpools
include members of the same household. Roger F. Teal, Carpooling: Who, How and Why, 21A
TRANSPORTATION RESEARCH 203 (1987).

5
present, is usually limited to explicit cost sharing rather than used as a price. A central
concern of this paper is comparison of instances where prices are the primary source of
information about, and incentive for, resource allocation, to instances where non-price
based social relations play those roles. Taking a co-worker to work, rather than another
person who is willing and able to pay more is an instance of social production, not of
price-based market production. This is true whether or not part of the social interaction
includes sharing the cost of gas and parking—because the market-defined social cost is
the unavailability of the seat to the higher bidder, not the operating cost of the vehicle.

Carpool-like arrangements where seats are sold for a price are rare relative to non-
price based carpools. They include mostly jitneys, 12 which may follow pre-defined
routes like buses, or offer door-to-door services, and “car sharing” services, which are
club-like arrangements where members pay on a per-use basis in addition to the
membership fee. 13 But price-based car sharing is the exception, not the rule. The vast
majority of carpooling occurs without pricing, though it does often include either explicit
barter or cost sharing. Carpools often involve some exchange–X drives Mondays, Y
drives Tuesdays, 14 or Passenger A gets a ride from Driver B, Driver B gets to use the
HOV lane. 15 Money does not typically mediate this type of transaction. 16 Rotating
driving and car-provisioning responsibilities is one major form of barter in this area, 17 but
money does not appear to be used to balance divergent costs or values—the owner of the
fuel-efficient sub-compact does not compensate the owner of the comfy gas- guzzler with
more money or added driving days. There is also some macro level data that could, with
further refinement, suggest that reciprocity plays an important role in carpooling. 18

12
See Isaac K. Takyi, An Evaluation of Jitney Systems in Developing Countries, 44 TRANSP. Q. 163, 170
(1990); Nicole S. Garnett, The Road from Welfare to Work: Informal Transportation and the Urban Poor,
38 Harv. J. on Legis. 173 (2001) (discussing jitney operations in New York City and Miami and their
potential to further help poor communities if allowed to operate legally).
13
Franz E. Prettenthaler & Karl W. Steininger, From Ownership to Service Use Lifestyle: The Potential of
Car Sharing, 28 Ecological Economics 443, 445 (1999). The pricing model follows remarkably well
Berglas’s version for efficient pricing of club goods. See Eitan Berglas, On the theory of clubs, 66 Am.
Econ. Rev., 116-121 (1976).
14
Aloise B. Heath, The Sociology of the Carpool, 12 National Review 360, 360 (1962).
15
See Marcela Kogan, Slugs and Body Snatchers, 29 Government Executive 39 (1997).
16
Ferguson, supra note 7 at 352 (“Most carpools do not involve any financial transactions”). The academic
literature on carpooling rarely mentions money.
17
See, e.g., Patricia A. Adler & Peter Adler, The Carpool: A Socializing Adjunct to the Educational
Experience, 57 SOCIOLOGY OF EDUCATION 200 (1984); Heath, supra note 14; F.W. Davis, Jr. et al.,
Department of Transportation, 1 Increased Transportation Efficiency Through Ridesharing: The Brokerage
Approach 57 (1977) [hereinafter Efficiency Through Ridesharing] (describing the “general norm of
reciprocity” by which carpoolers alternate driving days and “repay their driving days” if illness or holiday
disrupts the rotation schedule). The report presents a Department of Transportation survey of 4,500
Knoxville, TN-area carpoolers in 1974-75.
18
The relevant data point is the correlation between the number of automobiles a household owns and the
percentage of automobile-based trips that are carpools. Carpooling increases by 56% as a percentage of all
trips a person takes, if a person is a memb er of a household with one automobile, relative to individuals
whose household owns no automobile. Carpooling further increases by an additional 16% for members of
households with 2 automobiles, and declines by about 9% for households with 3 or more cars. Pucher &
Renne, supra note 6, Table 7. One hypothesis that could explain these data is reciprocity—one needs one
in order to participate, hence the practices increases as households move from zero to one to two cars. The
usefulness of the data at this stage is limited, however, because they do not do not differentiate whether

6
 Money changes hands more frequently in non-rotational work-related carpools.
Money in these contexts is still, however, not structured as marginal cost pricing—that is,
by willingness and ability of putative riders to bid on seats. Rather, full-time riders may
pay drivers for a portion of explicit operation costs, such as contributions to cover gas,
tolls, and parking costs, and sometimes wear and tear and maintenance in formally
negotiated cost sharing arrangements. 19 In terms of organization and governance,
practically all carpool arrangements are decentralized. Carpooling can be divided into
two stages of activity: 1) formation and scheduling, and 2) behavior of participants while
carpooling. Other than scattered government-, employer- and non-profit-run ride-
matching programs focused primarily on improving information about available rides and
riders, 20 carpool formation and scheduling appears to be highly decentralized. Carpools
for work-related trips usually are comprised of co-workers who live in rough proximity,
rather than of neighbors who work in rough proximity. 21 More generally, household
members, co-workers, and parents whose children have common transportation needs
typically contact potential carpooling partners and arrange a carpool without government
or market involvement. 22 In highly organized, regularized systems, e.g., a carpool in
which multiple parents drive children to and from after-school activities according to a

carpooling and car ownership are correlated because they correlate independently to distant suburban and
exurban living, where public transit it weak, whereas no car ownership may correlate to living in an urban
center where carpooling is crowded out by transit. Number of cars would then be indicative of a high
demand for private automobile-based travel, rather than for a practice of reciprocity. This latter point is
suggested by the fact that walking is also strongly associated with an absence of a car, and drastically
declines for households with one car or more. Id. On the other hand, this does not explain why social
carpooling, rather than market-based Jitneys and taxis, fill this demand.
19
See, e.g., P. W. Daniels, Vehicle Sharing for the Journey to Work by Office Employees, 15A Transp.
Research 391, 391 (1981) (noting regular, negotiated contributions by passengers to trip costs). An
informal survey of postings 250 postings on in the San Francisco Bay Area revealed that in 30% of
postings money is not mentioned, and in the vast majority of postings that do mention money, the request
or offer modulates the money as being for “gas” or “tolls,” etc. Only 10% of postings state a fixed price for
a ride, while only 6% state a price without modulating the price by characterizing its purpose as cost
sharing. The majority of users, whether money is asked or offered or not, also specify social characteristics
they desire in potential carpooling partners, such as being “good company” or having “good tunes.” Review
of anonymous postings, Craigslist San Francisco Rideshare bulletin board, Nov. 6, 2003, at
http://www.craigslist.org/rid/. (on file with author).
20
Craig N. Oren, Getting Commuters Out of Their Cars: What Went Wrong?, 17 Stan. Envtl. L.J. 141, 141
(1998). Oren provides an in-depth analysis of the Employee Trip Reduction mandate, the single most
ambitious government effort to pro mote carpooling to date. Oren concludes that the mandate fell short—it
did not come close to producing the desired gains in alternatives to solo driving and in air pollution
reduction—because it followed the structure of traditional technology-forcing environmental regulations,
failing to account for the complexities inherent in changing individuals’ commuting behaviors or for the
breadth of factors affecting carpooling; See, e.g., D.J. Dailey et al., Seattle Smart Traveler: Dynamic
Ridematching on the World Wide Web, 7 Transportation Research Part C 17 (1999); Roberto W. Calvo et
al., A Distributed Geographic Information System for the Daily Car Pooling Problem, COMPUTERS &
OPERATIONS RESEARCH (forthcoming), available at www.sciencedirect.com. The Microsoft Access-based
system optimizes the composition of carpool groups and carpooling routes for employees of a large Italian
employer and communicates with users via SMS, e-mail and the Internet.
21
Teal, supra, note 11, at 204 (citing A.J. Richardson & W. Young, The Spatial Structure of Carpool
Formation, paper presented at 1982 meeting of the Transportation Research Board).
22
See Efficiency Through Ridesharing, supra note 17; Heath, supra note 14.

7
written rotation schedule, 23 trip scheduling is an integral part of carpool formation but is
typically conducted by participants. Sporadic, ad hoc carpools—e.g., two roommates
who decide to carpool to work on a given morning, or carpool pick-up spots—do not
require organized scheduling at all. 24

One of the most rarified forms of carpool formation and scheduling, observed in
Northern Virginia and the San Francisco Bay Area, is ad hoc or dynamic carpooling. Ad
hoc carpooling—in California called “casual carpooling” 25 and in Virginia,
“slugging” 26 —involves solo drivers picking up strangers in well known meet points, to
form a carpool sufficiently large to and take advantage of HOV lanes. 27 The practice has
been described as follows:

[One driver] now has the system down cold. Between 7 and 7:15 a.m., she drives
to a slug line in the parking lot of a closed . . . home- improvement store in her
Northern Virginia suburb. [She] waits her turn behind other cars. When her car
gets to the front of the line, the next slug in line comes up to her window and asks
[her] where she’s going. The slug then shouts the destination to the others in line
and gets in the car if he or she wants to go in that direction. The next couple of
people in line headed in the same direction climb aboard, too. Usually, [she]
swipes someone within five to ten minutes. 28

The Northern Virginia terminology suggests a tension between this form of

carpooling and public transit—the drivers are called “body snatchers”; the riders “slugs”
(reportedly named after passengers who drop slugs instead of legitimate tokens into a
bus’s fare-box.). 29 Indeed, a recent study of the practice in Northern Virginia documents
substitution between dynamic carpooling and transit use, 30 and suggest also that dynamic
carpools depend on transit as a fallback option at least for one leg, in case the ad hoc
carpool fails to form in both directions. 31 Body snatchers can also find slugs, however, at
non-transit pick-up spots, which may be marked as dedicated carpool pickup stands, or
unmarked–e.g., street corners, parking lots–and may be designated by a centralized
authority or by custom. 32 While individual drivers and passengers may see each other on

23
See Heath, supra note 14.
24
See Kogan, supra note 15.
25
A list of casual carpooling locations on a San Fracisco website devoted to casual carpooling lists both
BART and shopping mall-type locations. http://ridenow.org/carpool/#locations (last visited April 16,
2004).
26
The community is a fountain of information about itself, see http://www.slug-lines.com.
27
Kogan, supra note 15.
28
Kogan, supra, note 15.
29
Id.
30
F. Spielberg & P. Shapiro, Mating Habits of Slugs: Dynamic Carpool Formation in the 1-95/1-395
Corridor of Northern Virginia, 1711 Transportation Research Record 31 (2000).
31
Id., at 33.
32
Id. A list of casual carpooling locations on a San Fracisco website devoted to casual carpooling lists both
BART and shopping mall-type locations. http://ridenow.org/carpool/#locations (last visited April 16,
2004).

8
more than one occasion, body snatchers and slugs are typically strangers, and participants
of the same functional type are fungible. 33

Dynamic carpooling appears to be a highly egalitarian activity: body snatchers

seem to take slugs regardless of gender, race, or occupation in order to fulfill their quota
and gain access to HOV lanes. 34 One set of regularities, however underscores an obstacle
that dynamic carpool must overcome, and offers a surprising hypothesis about impersonal
social cooperation. The deviation from the gender-neutral pickup practices is that solo
women will not usually enter a car with two men already in it. “Unrelated” slugs on a
line, however, will match up, whether male or female, irrespective of the gender of the
driver. 35 First, this underscores the fact that personal security fears may be a serious
obstacle to carpooling with strangers. 36 The matching practices suggest that security is
achieved by the fact that generally more than one rider will join a solo driver, and the
riders themselves are not pre-organized in groups. Each pair thus provides each
individual with some security against an aggressive stranger. The importance of strength
in numbers and lack of personal relationship is indicated by the fact that solo women will
join two men in a car if the woman and man were both on line and no relationship
between the two men is indicated. 37 Carpoolers on this model seem to assume a
prevalence and distribution of aggressive proclivities in the population that places a low
probability on two randomly associated individuals cooperating aggressively. Given
such a model of the prevalence and distribution of aggressive tendencies, fully
impersonal cooperation can then be seen as safer than partially impersonal cooperation,
where some subset of participants have a pre-existing relationship. Another aspect of the
same problem is “solved” by etiquette, as described in the “etiquette” page of the
Northern Virginia-oriented website lists: “the line does not leave a woman standing
alone….. Either a man forfeits his place in line so that he is left standing, or the ride is
declined until another slug arrives. Or, it is acceptable to ask the driver if he will take
more slugs in order to clear the line. Whatever the situation, the intent is not to leave a
woman standing alone on the street, especially at night.”38

As the reference to the etiquette indicates, though decentralized, ad hoc

carpooling is not entirely unregulated; social norms seem to play an important role in the
process. A list of such rules is found on the Northern Virginia site, 39 and includes
interesting insights. Slugs do not talk—at least, not unless the driver initiates. This

33
Id.
34
Spielberg & Shapiro, supra note 30, at 33. The article reports results of a survey of more than 3,000
drivers and passengers using an HOV lane to commute from Northern Virginia to Washington, DC. Of
28,000 commuters using HOV lanes during morning commute, the survey counted 3,100 slugs. Id. at 34.
35
Id.
36
The Californian description of the parallel issue is: “As far as anyone seems to know, over the history of
East Bay casual carpooling, there have been no untoward incidents. The "three-per-car" requirement has
helped. A little caution and common sense also have helped. Passengers can always decline a ride. For
example, female passengers have been known to decline rides in two-seat cars. They simply let another
passenger go first, and wait for a larger vehicle.” http://ridenow.org/carpool/what.htm.
37
Spielberg & Shapiro, supra, note 30.
38
http://www.slug-lines.com/Slugging/Etiquette.asp.
39
Id.

9
appears to be the rule in San Francisco as well. 40 No money, gifts, or tokens of
appreciation are ever offered or requested. No smoking or eating by driver or slug. No
going out of line—either for slugs to push ahead, or drivers to “snatch” slugs before the
line, except that drivers can call out to a particular friend they see on line. The slug does
not adjust the radio station or the heat. 41

Dynamic carpooling is an entirely impersonal, ad hoc, practice with no

perceptible socially stable set of participants. Yet participants do not use market
mechanisms to clear seats. They rely instead on pure short-term mutual interest with no
price—seats for eligibility for the HOV lane—together with social norms and practices—
to get body-snatchers and slugs together. 42 Behavioral controls may be somewhat more
formal, but these are rules of etiquette that are under the control of the driver, largely. 43
The decentralization of governance is paralleled in the normal case of carpools, where
key behavioral decisions – for example, driver rotation, seating arrangements, smoking
prohibitions, waiting policy in case of tardiness – appear largely informal: participants
follow loose norms or ad hoc decisions rather than explicit, articulated rules. 44

40
http://ridenow.org/carpool/what.htm.
41
http://www.slug-lines.com/Slugging/Etiquette.asp.
42
Dynamic carpools cannot quite be presented as “proof” that social provisioning is more efficient or
desirable, because there is ambiguity as to the legal status of a similar arrangement that would instead
operate on, for example, a spot-auction model. At least in some jurisdictions, such a practice could require
licensing as a taxicab or otherwise a vehicle for hire. But in the Northern Virginia corridor, the ambiguity
is limited. The Alexandria, VA Code, for example, covers only taxicabs and vehicles for hire that are
“maintained for hire”. See Alexandria Code of Ordinances, Sec 9-12-1(7), (14). While not impossible, it is
highly unlikely that a vehicle used, even a few days a week, for one or two trips where money changes
hands out of an entire weekly schedule, would be defined as “maintained for hire.” Slightly more
ambiguously, the Arlington, Virginia relevant ordinance, states that a “Taxicab or other motor vehicle
performing taxicab service means any motor vehicle having a seating capacity of not more than six (6)
passengers and not operating on a regular route or between fixed terminals used in the transportation of
passengers for hire or for compensation.” This definition would seem to include carpooling for
compensation, unless the sporadic use for carpooling would not designate the vehicle in general as a
taxicab, but rather as falling under the category of an “other motor vehicle performing taxicab services”.
“Taxicab services,” in turn, “means and includes the operation of any motor vehicle upon any street or
highway, on call or on demand, accepting or soliciting passengers indiscriminately for transportation for
hire between such points along streets or highways as may be directed by the passenger or passengers so
being transported.” The requirements of indiscriminate acceptance of solicitation, and the structure of the
contract as one where the passenger directs the destination and route, would seem to exclude carpooling,
including even dynamic carpooling. Arlington County, Code of Ordinances, Chapter 25, section 25-2.
(Available http://livepublish.municode.com/LivePublish/newonlinecodes.asp?infobase=11749). The San
Francisco ordinance, on the other hand, sweeps more broadly and probably would capture dynamic
carpooling in its scope. San Francisco Code of Ordinances, Article 16, Section 1076.
43
See Kogan, supra note 15. Kogan reports that “etiquette rules inside the car are pretty much up to the
driver. ‘Certain drivers will not talk,’ says one federal lawyer. ‘Others won’t shut up. You are under their
control; you are bumming a ride. Certain people will tell drivers to change the radio station, which I think is
bold.’” Id A 1977 Department of Transportation of commuters in Knoxville, Tennessee posits a general
rule: the fewer and more intimate the participants in a carpool, the less formal the arrangements for carpool
behavior. See Efficiency Through Ridesharing, supra, note 17, at 57, but it is not entirely clear what is
meant by “formal,” or what the source of the formal rules is .
44
See id. When asked how they established rules for their carpools, study participants “indicated that they
had briefly discussed [the issues] on the phone or at work before forming the pool, or when they were
initially riding together. There appears to be considerable reluctance to meet formally and discuss what will

10
 Surveys of carpoolers show that carpoolers have a wide range of motivations for
carpooling, and wide variation between carpoolers and solo drivers in attitudes towards
the costs and benefits of the practice. Carpoolers report that they carpool in order to take
advantage of HOV lanes, 45 to reduce individual driving burdens, 46 to reduce costs of
automobile use and maintenance, 47 for the company, 48 to be socially and environmentally
responsible, and to teach their children sociability. 49 A review of the existing research
suggests that carpooling behavior does not vary by socioeconomic or demographic
characteristics, 50 but does correlate with beliefs that carpooling is good because of all
these desiderata, 51 and with a discount on concerns with freedom to choose your time and
route, to be in peace, etc, typical of solo drivers. 52 Whether these attitudinal differences
are a reason for the different behavior or a coherence-seeking realignment of the

and will not be appropriate in a carpool. . . . When there are only two or three carpoolers, the riders
frequently indicate there are not set rules among ‘friends.’” Id. at 56.
45
See, e.g., Kogan, supra note 15; Lior J. Strahilevitz, How Changes in Property Regimes Influence Social
Norms: Commodifying California’s Carpool Lanes, 75 Ind. L.J. 1231, 1237 (2000); Spielberg & Shapiro,
supra note 30, at 33; Joy Dahlgren, High Occupancy Vehicle Lanes: Not Always More Effective than
General Purpose Lanes, 32 TRANSPORTATION RESEARCH-A 99, 100 (1998).
46
See, e.g., Heath, supra note 14 (“A carpool, after all, has only one raison d’etre: to drive as seldom as is
necessary to get your own child to school and back every day.”)
47
See Efficiency Through Ridesharing, supra note 17, at 56 (reporting that surveyed carpoolers cited the
price of gas and the price of parking as two of the top three reasons they carpooled); Ferguson, supra note
7, at 359 (“[F]alling real marginal fuel costs ‘explain’ a third of the observed decline in American
carpooling between 1970 and 1990”). Consistent with the importance of costs savings, carpooling
propensity appears to increase with commuting distance, see David T. Hartgen & Kevin C. Bullard, What
Has Happened to Carpooling: Trends in North Carlonia, 1980 to 1990, 1390 Transportation Research
Record 50, 58 (1993); Teal, supra note 11, at 209. In areas where HOVs are excused from paying tolls
during rush hour See, e.g., Golden Gate Bridge Highway and Transportation District, Golden Gate Bridge
Toll Rates, available at http://www.goldengatebridge.org/fastraktolls/ (last visited Nov. 2, 2003) carpooling
offers additional cost savings. See also Edward P. Weber et al., Understanding urban commuters: how are
non-SOV commuters different from SOV commuters?, 54 Transportation Q. 105, 110-11 (2000); Ferguson,
supra note 7, at 371 (citing decline in fuel costs as major determinant in carpooling decline); Teal, supra
note 11, at 207 (finding that commu ting cost burden correlates strongly with carpooling).
48
Efficiency Through Ridesharing, supra note 17, at 56.
49
Adler & Adler, supra note 17, 208-09 (asserting that carpooling is one of the first regular contacts a child
has with adults and children outs ide the immediate family and arguing that the carpool acts as an extremely
important socializing arena for children).
50
The 2001 NHTS suggests a minor income effect: carpooling is slightly less prevalent among households
with annual income less than $20,000, and has little if any correlation with income above $20,000.See
Pucher & Renne, supra note 6, at 19 tbl. 8. Income, education and gender seem to have little effect on
carpooling practices, see Ferguson, supra note 7, at 363. This does not mean that carpooling is entirely
divorced from economic consideration. Trip cost reduction is a consideration many commuters report as a
consideration, see supra note 47, and trip/fuel cost and vehicle availability do show some correlation to
commuting behavior. Ferguson at 371; Teal, supra note 11, at 207.
51
See Norbert Oppenheim, Carpooling: Problems and Potentials, 33 Traffic Q. 253, 259 (1979); Abraham
D. Horowitz & Jagdish N. Sheth, Ride Sharing to Work: An Attitudinal Analysis, 637 Transportation
Research Record 1 (1978) (concluding that only attitudinal factors – in contrast to socioeconomic and
demographic factors – are significant in explaining the carpooling behavior of 800 surveyed commuters).
52
Weber, et al., supra note 47, at 110-11; Horowitz & Sheth, supra note 51, at 5. See also Paul A. M. Van
Lange, et al., A Social Dilemma Analysis of Commuting Preferences: The Roles of Social Value Orientation
and Trust, 28 J. of Applied Socia l Psychology 796 (1998).

11
carpoolers’ preferences with their practices 53 is not obvious. What matters for our
purposes, however, is that people report these desiderata to be important to them, and to
be reasons they give to themselves as to why they carpool.

To conclude, carpooling is a deeply decentralized system, controlled by millions

of individual decisions rather than by government, market actors, or other institutional
players. It is organized largely without the use of prices or bureaucratic instructions to
clear seats, and is usually interpreted and explicitly described by its participants as a
social act, even when money does change hands to share explicit costs.

Distributed Computing

The phenomenon of “distributed computing” reflects an economically driven

technical trend in computation, coupled with a social innovation. The first thing to
understand is the idea of parallel computing. Imagine that I have a computational
problem that can be solved by performing 100 mathematical operations. I could solve it
in one second using a computer that could perform 100 operations in one second, or I
could solve it by dividing the operations to be performed into two batches of 50
operations, and run them simultaneously on two computers, each capable of performing
50 operations per second (assuming, for the moment, that the division of the problem and
collation of the results were costless). If the cost of improving the computation speed of
a single processor increases super- linearly (that is, it costs more than twice as much to
build a computer capable of 100 operations per second than a computer capable of 50
operations per second), then I can achieve the same result at lower cost by lashing
together two cheaper processors than I can achieve by building a faster processor.
Parallel computing is not costless. One must break up the problem into well-designed
pieces that can run simultaneously, rather than having one processor wait for the other to
finish, and there is overhead in managing the information input and output flows to and
from the processors, both to each other and to the system memory. The tradeoff therefore
becomes slightly more complex, but is fundamentally unchanged. Parallel computing
will achieve similar results to a single processor at lower cost, if the total amount of
overhead lost to parallelization is less than the cost differential for building the added
computation capacity into one computer. Imagine that doubling the processing capability
of a single processor quadrupled its cost, so that the 100 operation computer cost as much
as four 50 operation computers. Imagine that the overhead involved in parallelization
imposed a 30% loss of computation capacity “wasted” on parallelization. Taking the
same problem as before, one could still lash together three cheaper processors, achieve a
net 105 operations per second (after overhead), at a price of three processors, while the
single processor would cost, by assumption, as much as four processors. This simplified
explanation describes more or less why, by the end of the 20th century, most
supercomputers were made of thousands of simple processors lashed together, and
parallelization became an increasingly important field of computer science.

53
Dan Simon, A Third View of the Black Box: Coherence Based Reasoning in Law, Univ. Chi. L. Rev.
(forthcoming 2004).

12
 Parallelization in supercomputing set the stage for the next step, Interne t-based
distributed computing. As Shirts and Pande noted in 2000, 54 supercomputers can lash
together thousands of computers at a cost of tens of millions of dollars. But connected to
the Internet there are millions of computers, and one can lash together hundreds of
thousands of processors, rather than thousands, using their spare cycles, if one can
overcome the quite substantial design problems involved in structuring problems so that
they can efficiently be solved by very large numbers of processors with highly variable
availability and orders of magnitude slower communications than those possible among
processors located in arrays designed for, and dedicated to working together in, a single
physical machine. 55 Once the problem is defined, however, it can be approached by
designing new algorithms that trade off processing for communication, and focus on
algorithms that restructure the description of solutions to problems assuming much lower
constraints on the number of processors and much tighter constraints on communications
than those used in mainstream supercomputers. 56 While designing an algorithm to
achieve such scaling is difficult, it is not impossible, and the organizer of a project
obviously has the incentive to develop such algorithms in order to benefit from the
potential to mobilize distributed computing to solve his or her problems. 57

SETI@Home is the paradigmatic internet-based distributed computing project. It

harnesses idle processor cycles of about 4,500,000 users around the world. The users
download a small screen saver. When the users are not using their computer, the screen

54
Michael Shirts and Vijay Pande, Screen Savers of the World Unite!, 290 Science 1903-04 (2000)
55
The overarching ambition of connecting all the computation and storage resources connected to the
network in a capacity grid is also known as “grid computing.” See, e.g., Leon Erlanger, Distributed
Computing: An Introduction (April 4, 2002) available at
http://www.extremetech.com/print_article/0,3428,a=25002,00.asp; Brian Hayes, Collective Wisdom, 86
American Scientist 118, 118 (1998), available at
http://www.americanscientist.org/template/AssetDetail/assetid/20836; Ian Foster, Carl Kesselman, and
Steven Tuecke, The Anatomy of the Grid available at http://www.globus.org/research/papers/anatomy.pdf
(draft of version in Intl. J. Supercomputer Applications, 2001).
55
Ian Foster, What is the Grid? A Three Point Checklist (July 20, 2002) available at http://www-
fp.mcs.anl.gov/~foster/Articles/WhatIsTheGrid.pdf.
56
See, e.g., Michael Shirts and Vijay Pande, Mathematical Analysis of Coupled Parallel Simulations, 86
Physical Review Letters 4983-87 (2001) (explaining how to use a statistical algorithm to scale the speed of
folding deducible from a computer simulation linearly with the number of processors added); D. Laforenza,
Grid programming: some indications where we are heading, 28 Parallel Computing 1722-52 (2002). See
also Stefan M. Larson, Christopher D. Snow, Michael Shirts, and Vijay S. Pande, Folding@Home and
Genome@Home: Using distributed computing to tackle previously intractable problems in computational
biology (p. 11 of the working paper), available at http://folding.stanford.edu/papers/Horizon_Review.pdf.
57
The primary oddity from a rational choice perspective is that scientists would not develop the algorithm
unless thought that users would contribute their processing cycles, should the algorithm be developed. In
theory, given that there is no easy story to tell about why contributors would volunteer their excess
capacity, scientists should not develop these algorithms. Note, however, that there is nothing irrational
about the actual scientists’ beliefs that led them to design these systems. It is perfectly coherent for an
agent to have a belief that others are like the agent, and to hold the belief that conditional upon the agent’s
behaving in a trusting reciprocal way, others will behave similarly. Given that for the scientists who
develop these algorithms have no need to believe that any particular individual agent will cooperate, but
only that there is some set of motivated others who would behave as the scientist would and cooperate,
building the project is not only permissible for a rational agent, but represents a high likelihood of finding
cooperators.

13
saver starts up, downloads problems for calculation—in the case of SETI@Home, radio
astronomy signals to be analyzed for regularities as part of the search for extraterrestrial
intelligence—and calculates the problem it has downloaded. Once the program
calculates a solution it automatically sends its results to the main site. The cycle
continues for as long as, and every time that, the computer is idle from its user’s
perspective, so that the screensaver is activated. Using this approach, SETI@Home
became the fastest “supercomputer” in the world, capable of performing as of the summer
of 2003 calculations at a speed 60% faster than the NEC Earth Simulator, formally the
fastest supercomputer in the world at the same time, four times as fast as the next fastest
supercomputer, and seven times faster than the following three fastest supercomputers, 58
including the fastest supercomputer that IBM had built at that point in time. 59 The simple
fact of the existence and success of SETI@Ho me and similar projects, coupled with the
fact that only a tiny fraction of the world’s processors participate in similar projects 60
suggest that there is, and will continue to be in the foreseeable future, a significant
amount of idle computation resources extant in the world. 61

Another of the largest and best known distributed computing projects is

Folding@home. As of late November 2003, a snapshot of its usage statistics reveals that
it had amassed contributions of over 572,000 CPUs, of which about 20% were active at a
given moment, contributed by 272,000 users, some of whom were self-organized into
over 28,000 teams. 62 The contributions were concentrated largely in the United States,
Western Europe, Japan, and Southeast Australia. 63 SETI@Home and Folding@Home
provide a good basis for describing the fairly common characteristics of such projects.
First, these are non-commercial projects, engaged in a pursuit understood widely as
scientific, for the general good, seeking to harness contributions of individuals who wish
to contribute to such larger-than-themselves goals. Like SETI@Home, Folding@Home,
58
SETI@Home statistics showed a speed of over 54 Teraflops per second. The more traditional
supercomputers,—where a single firm or organization builds on computation cluster from processors under
its ownership or control achieved 35.8 Teraflops for the NEC Earth simulator, 13.9 Teraflops for the HP
ASCI-Q at Los Alamos National Laboratories, the Linux Network with 7.6 Teraflops, and the IBM ASCI
White mentioned in the preceding note, both at Lawrence Livermore Laboratories. See Top 500
Supercomputer Sites, at http://www.top500.org/list/2003/06/. These numbers and relationships offer, of
necessity, a snapshot. When looked at again five months later, the mainstream supercomputers remained
similar, but the number for SETI@Home had increased to over 64 Teraflops.
59
IBM ASCI White, at Lawrence Livermore Laboratories, could perform 7.3 Teraflops, See Top 500
Supercomputer Sites, at http://www.top500.org/list/2003/06/, as compared to 54 Teraflops calculated by
SETI@Home.
60
There is no hard technological block to, for example, using microwave ovens for computation on this
model. It is more a question of connectivity and engineering. But as we move to a more highly
interconnected environment of pervasive computing, the number of connected computers per person in the
industrialized world will be very large. Many of these are unlikely to require their full computation
capacity any more often than microwave ovens do, when you happen to call on their services automatically
to select the time and power of heating your dinner.
61
SETI@Home is now also providing the development and deployment of a platform for the potentially
next -generation improvement—the development of a cross-project common platform called BOINC, the
Berkeley Open Infrastructure for Network Computing, that would allow many projects and many users to
be matched dynamically, as needs and capacities changed, rather than having every user dedicate his or her
computer to helping one project or another and downloading project-specific software for each project.
62
For daily stats see http://folding.stanford.edu/cgi-bin/serverstats .
63
See http://www.stanford.edu/group/pandegroup/folding/maps.html.

14
Fightaids@Home, Genome@Home etc. appeal to broad other-regarding concerns. Other
sites, like those dedicated to cryptography or math, have a narrower appeal, but are also
“altruistic”, or perhaps hobbyist, in their basic motivational appeal. The absence of
money is, in any event, typical of the large majority of active distributed computing
projects. 64 Less than one fifth of these projects mention money at all. Most of those that
do mention money refer to a share of a generally available prize for solving a scientific or
mathematical challenge, and mix an appeal to hobby and altruism with the promise of
money. Only two of almost 60 projects active in November, 2003 were built on a pay-
per-contribution basis. 65

In the SETI@Home internal survey, 66 the project found that users respond to the
question “what is your main reason for running SETI@Home” with a strong emphasis on
“good of humanity” (58%), or “keep my computer productive” (17%), and a little more
than 5% focused on answers that tended to suggest a search for fame or explicit
recognition, like getting one’s name on the top 100 list of the site. While far from
scientific, the SETI survey offers some texture as to the motivational self-descriptions of
participants, albeit within a choreographed questionnaire, and certainly reflects the
assumptions of those running the site about the kind of motivations for which they design
their sites. Similarly, the organizers of Folding@Home and Genome@Home describe
their design assumptions, reflecting a belief that users contribute their cycles because
they are motivated by lay interest in the project, a desire not to waste computing
resources, or by an amateur interest in either computers or the science involved. 67

The assumptions about the motivations of contributors are translated quite clearly
into both the client interface design and the websites supporting the project. Interfaces
are explicitly designed to provide participants with feedback about their own
contribution, information about the scientific context and output of their contributions,
and a platform for both competitive and mutually supportive social interaction. The SETI
client shows users how the ir own processing component is going, as well as offering a
graphic representation of the data processed, which is aesthetically pleasing but relatively
opaque as an explanation of the science or the results. Folding@Home offers a

64
The aggregate descriptions are based on observations made November, 2003, of 57 projects linked to on
http://www.aspenleaf.com/distributed/distrib-projects.html, a site dedicated to collecting links to all
distributed processing sites.
65
These sites, Gomez Performance Networks, and Capacity Calibration Network, differ functionally from
distributed computing projects. The service they offer is running network traffic analysis by placing queries
from topologically-diverse locations. They require their user’s topological diversity, not their processing
power. Therefore not all PCs are equal in their eyes. The specificity of the requirements, which generates
the need to reject many putative contributors, likely contributes to the difficulty of attracting volunteers, in
addition to the divergent social meanings of calls to “help organizations solve their business problems” as
compared to “help fight AIDS”. Money then steps in as a reasonably well understood motivational source
for a project ill-suited to mobilize contributors socially. Because both projects were not trying to aggregate
as many users as possible, or crunch as many numbers as possible, aggregate “success” of these projects, is
not qualitatively comparable to SETI@Home or similar projects.
66
http://setiathome.ssl.berkeley.edu/polls.html
67
Larson et. al., supra note 56, at 2 (of the working paper). They do not explain how lay interest is
different than amateur interest, but one suspects that these stand in for different levels of engagement and
hobbyist-enthusiasm.

15
visualization of the actual calculation performed on the computer as a screen saver,
providing an intuitive, if still analytically opaque, visualization of the work done.
Climateprediction.net, a project focused on simulating climate change, takes a different
approach. Ech user downloads a whole “run”, so that the world they run is a complete
single run of what happens if CO2 levels double from pre- industrial levels while a variety
of other parameters are tweaked. The screen saver allows the participants to see how the
world they are running is changing in the simulation. The site offers people the ability to
compare “their” world to those of others and to a baseline run, providing greater
opportunity for individual participation in reading the results.

Most of the distributed computing projects provide, on the server side, a series of
utilities and statistics intended to allow contributors to attach meaning to their
contributions in a variety of ways. The projects appear to be eclectic in their implicit
social and psycholo gical theories of the motivations for sharing. Sites describe the
scientific purpose of the models and the specific scientific output, including posting
articles that have used the calculations. In these components, the project organizers seem
to assume some degree of taste for generalized altruism and the pursuit of meaning in
contributing to a common goal. They also implement a variety of mechanisms to
reinforce the sense of purpose, so there are aggregate statistics about total computations
performed. But the sites also seem to assume a healthy dose of agonistic giving, as well.
For example, most of the sites allow individuals to track their own contributions, to see
their effect accumulating, but some also provide “user of the month” type rankings—
displaying who contributed the most cycles and similar statistics. An interesting
characteristic of quite a few of these is the ability to create “teams” of users, who in turn
compete on who has provided more cycles or work units. SETI@Home in particular taps
into ready- made nationalisms, by offering country level statistics. Some of the team
names on Folding@Home also suggest other, out-of-project bonding measures, such as a
national or ethnic bonds, (e.g., Overclockers Australia or Alliance Francophone),
technical minority status (e.g., Linux or MacAddict4Life), organizational affiliation
(University of Tennessee or of Alabama), as well as shared cultural reference points
(Knights who say Ni!). In addition, the sites offer platforms for simple connectedness and
mutual companionship, by offering user fora to discuss the science and the social
participation involved. It is possible that these sites are shooting in the dark, as far as
motivating sharing is concerned, but it is also possible that they have tapped into a
valuable insight, which is that people behave for all sorts of different reasons, including
all sorts of different reasons to act generously, and that at least in this domain adding
reasons to participate—some agonistic, some altruistic, some reciprocity-seeking—does
not have a crowding out effect. Research on the presence and pattern of crowding out
between different sharing patterns would be useful in the design of such projects. 68

III. Lumpiness, granularity, and shareable goods

The case studies are intended simply to motivate the analysis. They show us that
there are large scale sharing phenomena in the world that successfully provision material
desiderata through social sharing practices. These practices involve the sharing of private
68
On crowding out between money and non-monetary rewards see infra, Part IV.B.

16
goods—automobiles and personal computers—as inputs. They involve rival outputs—
seats in cars going from point a to point b, or computer processor cycles devoted to
problem a rather than to problem b. They exist alongside market mechanisms for
delivering substitutable functionality. And they work well; in some cases, better than
market mechanisms. The questions that this part and the next will seek to answer within
an economics-based framework are why this happens, why it is sustainable, and when is
it efficient. This part is dedicated to describing a class of characteristics that, in
combination, define a situation where it is likely that individuals will over- invest in
capacity- generating goods—like PCs and automobiles—which will then have excess
capacity, widely distributed in smallish dollops among large numbers of individuals in a
society. The next part will be dedicated to explaining why this excess capacity may better
be distributed by social sharing than by secondary markets (or administrative allocation).
While the goods I call here “shareable goods” could be understood as a sub-class of “club
goods”69 or “common pool resources,”70 the additional specification more precisely
isolates individually owned goods that have excess capacity and are available for sharing.

The basic intuition is simple. There are goods that are “lumpy,” by which I mean
that given a state of technology, they can only be provisioned in certain discrete bundles
that offer discontinuous amounts of functionality. In order to have any computation, for
example, a consumer must buy a CPU, which in turn only comes in certain speeds or
capacities. Lumpy goods can, in turn, be fine-, medium-, or large-grained. A large-
69
See James Buchanan, An economic theory of clubs 32 Economica 1-14 (1965); Mancur Olson, The
Theory of Collective Action (1965); Eitan Berglas, On the theory of clubs, 66 Am. Econ. Rev., 116-121
(1976). A current description of the state of the theory is available in R. Cornes & T. Sandler, The Theory
of Externalities, Public Goods, and Club Goods (2d ed. 1996).
70
An early and broad claim in the name of commons in resources for communication and transportation, as
well as human community build ing—like roads, canals, or social-gathering places—is Carol Rose, The
Comedy of the Commons: Custom, Commerce, and Inherently Public Property, 53 U. Chi. L. Rev. 711
(1986). Rose’s observations on commons in waterways, highways etc. had far more radical implications in
the long term than the direction that the bulk of the literature took over the course of the 1990s, because it
focused on cases where commons superseded areas that had previously been private property—like
turnpikes or private property over which public paths were later recognized. As such, it suggested that
there were areas where commons were strictly superior to private property, that these commons existed at
the very heart of our commercial system, and that many of the most important of these commons—like the
highways and waterways—were not limited common property regimes, but were in fact open for anyone to
use under very general usage rules. Condensing around the work of Elinor Ostrom, a different, narrower
and less threatening literature developed over the course of the 1990s. It was concerned with showing that
there were places where non-property regimes, or more accurately, common property regimes, were
sustainable and stable over long periods of time. This line of literature was less radical and threatening
than Rose’s original claims, because it inverted the signs of all three radical implications of her claims.
Common property regimes were shown to be stable, not claimed to be more efficient. They were studied
on the peripheries of the main economies, and could be understood as stable holdovers, rather than as
strictly more efficient alternatives that superseded preexisting private property regimes. And they were, in
fact, a property regime, except that the outer boundary of the property included many participants, among
whom proprietary interests were divided through governance mechanisms rather than through property and
contract. The condensation point of this literature was Elinor Ostrom, Governing the Commons (1992);
another seminal study was James M. Acheson, The Lobster Gangs of Maine (1988). A brief intellectual
history of the study of common resource pools and common property regimes can be found in Charlotte
Hess & Elinor Ostrom, Artifacts, Facilities, And Content: Info rmation as a Common-pool Resource, (paper
for the “Conference on the Public Domain,” Duke Law School, Durham, North Carolina, November 9-11,
2001).

17
grained good is one that is so expensive that it can only be used by aggregating demand
for it. Industrial capital equipment, like steam engines, is of this type. Fine-grained
goods are of a granularity that allows consumers to buy precisely as much of the goods as
they require of the functionality they deliver. Mid- grained goods are small enough for an
individual to justify buying for her own use, given their price and her willingness and
ability to pay for the functionality she plans to use. If enough individuals in society buy
and use such mid-grained lumpy goods, that society will have a large amount of excess
capacity “out there,” in the hands of individuals. The problem of how to harness that
excess capacity and use it to provision the requirements of others is the problem that Part
IV deals with. If you are comfortable with this simple intuitive explanation, you may
wish to skip the remainder of this part and go directly to that part. What follows here is a
more-or-less careful working out of lumpiness and granularity, and the conditions under
which we should expect there to be large scale excess capacity in the hands of individual
owners of goods that become the opportunity for large-scale sharing practices.

A few assumptions and terms run throughout this part. Resources or goods have a
usable lifetime—which can be of any length—once put in service. Owning a resource is
not intrinsically utility generating. Use of the resource over its lifetime is what generates
value to the agent. The welfare-producing use that a resource enables is its
“functionality”. Agents value a resource or good at the utility that use of its functionality
is expected to generate over the lifetime of the resource. The degree to which the
functionality of a resource can be used is its capacity. A good has a lifetime capacity,
which is the total amount of functionality it can deliver over its usable life. This may or
may not be separate from, and greater than, the good’s usable capacity, which is the
capacity it can deliver within the timeframe necessary for use of the functionality to
generate the welfare sought by users. Capacity is technologically given. People purchase,
make, or otherwise invest in putting into operation units of goods or resources that are not
themselves the utility sought, but rather are resource packages that have the capacity to
produce functionalities. I begin with two special cases that are easily grasped intuitively,
and then generalize.

Renewable resources

Renewable resources are resources that can deliver their functionality within a
given time frame, and are then capable of delivering that functionality again at a later
time. A perfectly renewable good is capable of delivering exactly the same amount of
functionality over time, irrespective of whether its functionality was used in full at a prior
moment in time. Its expected lifetime is unaffected by use. An imperfectly renewable
good either delivers some, but not all, of the amount of its functionality with each
successive use, or loses expected lifetime with each use. A nonrenewable good is one
that can deliver its functionality once.

“Spectrum” is a perfectly renewable good. Dining tables, computer processors,

and automobiles, are slightly less perfectly renewable, but still almost perfectly
renewable. Rubber bands, soccer balls, lithium ion batteries, etc., are imperfectly
renewable. Apples, matches, etc., are strictly nonrenewable. Renewability is equivalent

18
to nonrivalry along the time dimension. A perfectly renewable good is like a nonrival
good as among all and only those uses that can be timed to occur asynchronically without
loss of value. Perfectly renewable goods are, in this sense, an impure public good, where
the limitation on their use by marginal users is their requirement that time pass before
they can deliver additional units of desired functionality. Another way of thinking about
them is that they are club goods with a zero maintenance cost, as to which congestion is
measured as the likely divergence, for a reference agent, between the desired time for
delivery of the functionality and the actual time at which functionality is available given
the sequencing or queuing algorithm used to synchronize use of the resource.

An individual will decide whether to put a unit of a good into service by

comparing the value of its functionality over time, discounted, to its price. Imagine a
good that expires after a year in service, irrespective of how it is used. The individual
plans to use the functionality once a week, for an hour ; a use that the individual values at
v, and which the individual cannot replicate except by owning a unit of the good. The
individual will be willing to pay up to 52v for a unit of the good (ignoring discount).
Where, as in this case, an individual’s demand for functionality is variable over time and
the functionality can be delivered by a renewable good, the individual has an
overcapacity to deliver the functionality. This overcapacity is precisely the extent of the
divergence between the time necessary for renewal of the good’s capacity to provide the
functionality and the time lapse between instances where the individual demands the
capacity. In the example, assuming the good is perfectly and immediately renewable, the
individual owns an overcapacity of 8684v, reflecting the availability of the unit to be used
by someone other than the owner for 24 hours a day for six days, 23 hours the seventh
day, for 52 weeks, which is the life of the unit (assuming for simplicity that others value
the use as much as the individual).

Intuitively, take a renewable resource like a lithium ion battery. Sometimes, the
owner of a camcorder or camera will need more power than a full battery can offer, and
will need it again as soon as it has recharged. In that setting, the good provides less
functionality than desired by its owner, because the time for its renewal is greater than the
time demanded for additional capacity. The degree to which this will be common, the
lost utility from not having power, and the price of a second battery will determine
whether the owner will put a second, backup unit in service. Sometimes, the owner will
be able to let the battery lie in the device for weeks, not needing power at all because
lacking in opportunities to shoot videos or photos. During that period, the battery has
excess capacity—if held by another, it could have delivered its power, and renewed,
before its owner would require it again—multiple times. With batteries, our experience
may resist this example because we know that they are not infinitely rechargeable. With
computer processing cycles that is less the case.

Rapidly decaying resources

A resource is rapidly decaying when the rate at which it decays is greater than the
rate at which one user can consume its capacity. Once a user decides that the capacity he
can in fact extract before the good decays is high enough to justify putting a unit into

19
operation, the functionality is over provisioned as to that individual, and excess capacity
is created for the short lifetime of the resource. Unless that capacity is used by others—
who may borrow or buy it—it will be wasted. 71

A single trip in a car (unlike the car itself, which is highly, but not perfectly
renewable) is a rapidly decaying good. Once the owner of a car decides to travel from
home to work, the good “four seats going from a to b on Tuesday morning” has been
created, and will last only for the length of the trip. Carpooling is in this instance a
practice of sharing a rapidly decaying good. (In this carpooling is different from lending
a car to a friend for the weekend or for a trip to the grocery shop, which uses the car’s
renewability, not the rapidly decaying character of a trip the owner is about to undertake.)
The parallels between rapidly decaying goods and renewable goods may help to explain
why ova are treated like renewable tissue—sperm or blood—for purposes of egg
donation, rather than like nonrenewable tissue, like livers or hearts, that are not similarly
over-provisioned. It is also consistent with observations of some behavioral ecologists,
who claim that sharing is particularly common in large-package foods—for example, the
observation that in the same community, hunters will share widely the meat from a large
sea turtle, but will net no more of finer-grained foods, like small lagoon fish, than they
need within the household, and then will not share these in the broader community that
would normally share in the turtles. 72

Lumpiness in general

The two special cases of renewable resources and rapidly decaying resources can
be generalized to describe “lumpy” resources of mid- grained granularity. A lumpy
resource is one that delivers utility in discrete packages, rather than continuously.
Physically, any resource is “lumpy”, including rice or even water (at the molecular level).
So “lumpiness” is intended as a concept in economics, not physics. It describes a
relationship between technically attainable package size and extant demand by agents. It
refers to a divergence between the package size (of each unit or of any cost-effective
aggregation of units) and the extant demand of individual agents for the functionality
produced by the good. One might therefore think of the “lumpiness” of a resource as
reflecting the capacity of a single unit of a resource to provide a functionality, and the
probability that that amount of utility or functionality supplied by any physically

71
Interestingly, Locke bases his praise for money precisely in terms of its capacity to store the value of a
rapidly decaying good in the sense described, thereby giving the provisioning agent the value of his labor,
while avoiding the predicament that a laborer takes from the common and then wastes what he took.
Locke, Second Treatise paras 36-38, 46-50.
72
See R. L. Bliege Bird and D.W. Bird, Delayed Reciprocity and Tolerated Theft, the behavioral ecology
of food-sharing strategies, 38 Current Anthropology 49-78 (1997). While the fact may explain the origins
of the sharing practices, it does not explain its continued persistence—given that the studied people already
have refrigeration. Id. It is important to note also that the bulk of anthropological study of sharing
practices is not limited to goods with these characteristics, and may relate to abundant goods, as in the case
of potlatch societies, as well as to scarce and unique goods that are do not rapidly decay and are not
“shareable” in the sense I describe here, like the objects of kula rings. See Godelier, Enigma of the Gift
(1997) for one of the most important recent contributions to this literature, as well as an intellectual map of
its origins.

20
obtainable number of discrete units of the resource in a time frame will diverge from the
amount of functionality demanded by an agent in that time frame.

An agent will invest in owning a unit 73 of a lumpy resource if the utility the agent
achieves over the lifetime of the resource is greater than the price of the unit for its
lifetime. The fact that a resource is capable of producing more utility over its lifetime
than the agent needs over that lifetime is irrelevant to the individual’s decision whether to
invest in a unit or not. That decision is made purely on the comparison of the value over
lifetime, expressed as the capacity to produce a functionality flow, and the cost of a unit
(bracketing, for now, the possibility of a secondary market or sharing system.)

In order to give lumpiness some persistence, both supply and demand of the
functionality must be in discrete units. If we were to define the agent’s demand as
capable of fulfillment incrementally, for example, that by provisioning a unit of a
resource that offers 90% of what the agent requires the agent could fulfill 90% of the
agent’s demand, the analysis would collapse back into smooth demand and supply
curves. The assumption must be, then, that, like functionality supply, demand comes in
discrete units. Fulfillment of 90% of the requirement is no fulfillment at all. Intuitively,
an automobile without a gas tank or missing a wheel cannot get one to work, even if the
rest of the car is there. Agents, then, will not provision units capable of providing less
than some threshold of demanded functionality.

The discrete unit of demand, however, remains the single agent. It is possible for
agents to aggregate their demand in order to co-provision a very large-grained lumpy
good, that is, one whose functionality is multiple times greater than the requirements of
any agent, so that it can serve the demand of multiple agents. The obvious example of
this is where labor market provisions the power of a steam engine or other large machine
to a number of workers on an assembly line, or where farmers’ cooperatives provision
harvesters. But I am concerned here with finer-grained goods that need not require
aggregation of the demand of multiple agents to provision a single unit.

Because demand is discrete, units that under-produce functionality below some

required threshold (automobiles without wheels or gas tanks) will not be provisioned.
Units that will be put into operation are therefore a subset of those that are lumpy in the
general sense defined earlier. That subset consists of those units whose capacity equals
or exceeds the threshold functionality demanded by the agent who put them into service,
in that timeframe. The total social capacity for provisioning the functionality in a given
timeframe will be the sum of capacity capable of being provisioned by all units of the
resource put into operation in that timeframe by the agents who have provisioned units.
The excess capacity of the units in operation at a given time relative to the requirements
of their owners is the “slack” of this resource set. Note that “slack” here refers not to the

73
For simplicity of exposition, I will treat a collection of small but discrete units that cannot be aggregated
into precisely the amount of functionality desired, as a single lumpy unit that delivers functionality in an
excess amount equal to the divergence caused by the last incremental unit. This does not change the
analysis, but simply obviates the need to talk about units that are small grained, but still lumpy in the sense
that no combination of obtainable units will deliver precisely the amount of functionality desired.

21
claim that there will necessarily be overcapacity at an aggregate social level, all social
demand for the functionality considered, but rather that there will be some capacity that
would be unused if only the owners of units use the capacity generated by the units they
own. Recall that we assume for now no transfers of excess capacity. The amount of
excess capacity will be the sum of all capacity of units in operation at a given time, less
the amount required by all owners of units in that time frame discounted for each owner
by the probability that the unit placed in operation by that owner will produce either
exactly as much capacity as she will require or less (in which case the owner of the unit
would capture all the capacity produced by the unit she owns ).

If units have a technically predefined capacity and agents have variable demand
for the functionality, then the larger the number of agents who put units into operation,
the higher the probability that some of the agents will own resources that have slack as to
their needs, and the higher the probability that the universe of agents who own units will
have excess capacity among them. The probability that each agent requires exactly as
much capacity as his or her unit can supply in the relevant time frame becomes very
small as the number of agents who own units increases. Because of the lumpiness, then,
the total set of resources or goods that have these characteristics will usually exhibit slack
capacity to produce the functionality. This slack will exist unless the excess capacity is
somehow transferred to fulfill the demand of non-owners. Because of the relationship of
the increase in the likely available slack to the number of unit owners in society, the
extent to which a good will be “mid-grained,” and shareable in the sense I describe here,
or “large grained,” like a steam turbine, will depend on the extant wealth in a society and
its distribution—that is, how many people are able, as well as willing, to pay its price. A
PC is a shareable good in North America, Europe, etc., but may be a large-grained capital
good in an Indian or Brazilian village.

The intuitive response, at least for economists, to such endemic “overcapacity” of

functionality is to create a secondary market in excess capacity. For large- grained lumpy
goods, like steam engines or hotels, this could take the form of a labor market or a hotel
room market, respectively, where the excess capacity (from the perspective of an
individual agent) is not excess capacity at all, but rather the demand is aggregated so as to
match it to the capacity and “smooth” out the lumpiness. For mid-grained goods the
answer would be a secondary market in capacity so as, once again, to smooth out the
lumpiness by aggregating and disaggregating the demand side of the incongruence
between functionality provisioned and functionality demanded on a per unit/owner basis.
Yard sales and eBay would be the relevant intuitive examples of such secondary markets.
Part IV will consider the reasons why we might nonetheless see the sharing systems that
we in fact observe.

Before we outline the relative advantages of secondary markets or sharing

systems, however, their introduction requires an explication of the dynamic effect of any
type of transferring excess capacity to non-owners. The more efficient the sharing or
secondary market for excess capacity will be—that is, the smaller the difference in the
value of functionality that can be acquired by owning a unit relative to acquiring it from
the market or social sharing system in excess capacity—the less of an impetus there will

22
be for marginal users to put new units of the functionality-producing goods into service,
rather than acquiring functionality from the secondary market or sharing system. As the
motivation to provision the marginal unit declines, however, units will end their life
cycle, total social capacity will decline, and the difference between owning a unit and
acquiring capacity from units owned by others will grow, increasing, in turn, the
attractiveness of putting an additional unit into service for the marginal user. The degree
of efficiency with which a system of secondary market or sharing will pass through
excess capacity without degradation of functionality will therefore be the degree of
efficiency of that system relative to an ideal perfect market, considering the total cost of
provisioning the capacity and the total functionality value utilized by users.

If there were a perfect secondary market in capacity, the deadweight loss created
by the overcapacity would be eliminated. Enough units that would ge nerate enough
capacity to satisfy demand for the functionality would be purchased, but no more, and
their excess capacity would be reallocated to individuals who valued some functionality,
but not enough to purchase an additional unit. Consider the following simple numerical
example. Imagine that the marginal cost of a unit is the equivalent of the value of a
degree of functionality designated as 4f, but that because of the technical lumpiness, each
unit generates a functionality flow of 6f. Imagine further that the demand for the
functionality in society is as follows: Five individuals demand a functionality flow of 5f,
five demand 4f, five demand 3f, and five demand 2f. Total social demand for the
functionality would be 70f. If there were no secondary market or sharing system, total
social demand for capacity generating units would be 10 units (demanded by the ten
individuals whose demand equals or exceeds the cost of a unit, 4f). Total social supply of
functionality from these units would 60f, but only 45f would be consumed by unit
owners, and 15f would be wasted, while individuals who demand 25f would remain
unserved. With a perfect secondary market, 12 units would be put into operation,
generating a total social capacity of 72, and all users who value functionality would be
served, with the total social capacity exceeding demand by 2f. Now, imagine that
technology was such that each unit generated functionality of 10f, some of those who
bought units under the first assumption would refrain from doing so, acquiring units
instead from the secondary market, and only 7 units would have been put in operation.
The basic point is obvious. Even if the units are lumpy, if functionality can be transferred
costlessly and perfectly from unit owners to non-owners, there will be no over capacity.

Markets are not, however, perfect. And in Part IV, I will describe in detail how
transaction costs in general and information shortfalls in particular can be integrated into
the analysis. The overarching intuition is this. Secondary markets and social sharing
systems are alternative systems for transferring the excess capacity of units that are in
service at a given time. They differ in the transaction costs associated with the use of
each, and in particular they differ in the quality of information they generate. Which one
will more efficiently pass through its excess capacity to non-owners will determine which
will be more efficient as a system for managing resources that have these technological
characteristics.

* * *

23
 Goods that meet the focused definitions I offer for sharable goods are not rare
events in our daily lives. Automobiles come with standard packages of seats; PCs with
CPUs and disk storage well beyond what most users will use. Beyond these examples,
one can look at many others. Books (rather than their content), are an excellent example.
In order to read a book one can borrow it from a library, or buy it. Once purchased, the
book has much more capacity to deliver its primary functionality—communicating its
content—than a single non-obsessive individual can consume. This overcapacity is the
source of the second-hand book market (market provisioning), the public library (state
provisioning), or the widespread practices of lending books to friends (social
provisioning). Houses and apartments are a ubiquitous, though muted, instance of
shareable goods. In the first instance, they are shared within families and non- family
households, like roommates. 74 Rooms are sometimes disposed of through markets, as in
the case of bed and breakfasts, sometimes through social exchange systems, as when
guests come to stay overnight, or invited to use one’s bathroom (itself a nested shareable
good). The complex systems of market and social provisioning of renewable tissue like
blood and sperm, or rapidly decaying over-provisioned tissue like ova, can also be
understood in terms of these forms of tissue having the characteristics of shareable goods,
capable of being provisioned and exchanged either through markets or through social
systems. Finally, toys have similar characteristic, and provide the first and central mode
of cultural transmission of the values of sharing the excess capacities of one’s
possessions. Anyone who sits in a New York City playground can only marvel at the
paradoxical phenomenon of Wall Street traders admonishing their children to “share
nicely,” and will appreciate the deep cultural commitment we have to sharing some
subset of our private, rival possessions as a mode of social provisioning.

IV. Sharing and markets: transaction costs and motivations

The price system (whether engaged in directly by agents or through hierarchical

firms), 75 the state, and social relations provide different transactional frameworks through
which individuals can act. 76 Each has different set up costs. Each has different marginal
74
See Robert C. Ellickson, The Law & Economics of the Household (draft).
75
A methodological (or perhaps metaphorical) note is due. One often hears people speaking of “a market
in reputation” or “a market in which people compete for esteem.” It is important to recognize that such
statements are metaphors. Markets as actual institutional forms are a very particular information process,
generating information in a very particular form—prices. Other modalities of allowing unorganized
individuals to decide on their actions without hierarchical coordination, even if they are fully distributed
and atomistic in style, but that rely on other institutional forms and social practices, are not “a market,”
except metaphorically. The metaphor is a bad one if it leads us to ignore the fact that on any given question
of institutional design, there may be different answers depending on whether we think that the most
effective system would utilize prices or, for example, esteem.
76
Note that this tri-partite typology is similar to, but not the same as the tripartite description of
organizations one finds in the discussion of non-profits. See, note 3, supra. The difference is that investor
firms, nonprofits, and government agencies are all organizational forms of action. My focus here is more
general, and applies to individual domains of action. Nonprofits of the type Hansmann calls “commercial,”
See Hansmann, supra note 3, can work through markets, such as by selling services in competition with for
profits. For profit firms can use social relations, by leveraging the social capital of their employees. See
James S. Coleman, Social Capital in the Creation of Human Capital, 94 Supp. Am. J. Soc. S95, S106
(1988); Nan Lin, Social Capital: A Theory of Social Structure and Action 19-28 (2001).

24
transaction costs. Each also, independently but cumulatively, has a different reward
structure. This part works through first the transaction costs analysis of the choice, and
then the question of motivation.

A. Transaction Costs

1. Choosing a transactional framework

An agent considering whether or not to allow others to use his or her resources
must go through a decision patterned as described in Figure 1. Each decision can be
understood as a cost benefit analysis that considers (a) the transaction costs involved
under given technological and legal conditions in the act of complete or partial exclusion,
and (b) the comparative opportunity costs of inclusion and exclusion, in each case under
any of the modalities of organizing the use and exchange of resources—market, state, and
social relations. Because I am concerned here with the decisions of agents with regard to
privately owned goods and resources, I will ignore the state-based options for disposition,
although the shape of the comparative analysis is similar. The tree illustrates that the
basic decision of whether or not to transact based on a comparison of the transaction
costs and the likely benefits of transacting involves not one choice between two options
(transact/not transact), but a series of choices among a variety of actions ranging from no
exclusion at all to perfect exclusion with no transaction at all, and proceeding through a
variety of alternatives for partial exclusion. Different options for exclusion and different
strategies for inclusion will entail different transaction costs.

Agent / resource

Exclusion No exclusion
(woodlands in upstate New York)

Perfect exclusion Partial exclusion

(single occupancy vehicle
commuters)

Selective Non-selective
(first-come first served, e.g.
Internet routers, peer-to-peer
clients, body-snatchers and slugs)
Social Market
(carpooling, distributed (Jitneys, priced distributed computing:
computing, dinner parties, any priced transaction selects among
common property regimes) those willing and able to pay and those
not willing or able)

Figure 1. Decision to exclude

The first choice point is between exclusion and no exclusion.

25
 No exclusion. Simply leaving the resource open to anyone’s use is likely to be the
lowest transaction cost option. No fences, no guards, no contracts, etc. However, it is
likely to be the highest cost alternative in terms of congestion costs—opportunity costs
incurred by the owner whenever her failure to exclude anyone from the good causes her
not to have her unit of the good available to her for her own use. These may be high or
low, depending on the nature of the good and the pattern of demand for the good.
Privately owned woodlands in New Hampshire or upstate New York may be sufficiently
abundant, use by hikers and hunters sufficiently sparse, and fencing sufficiently costly
that de facto open access policies may be most efficient for individual landowners to
adopt. Otherwise, the owner will choose some form of exclusion.

The second choice is between perfect exclusion and partial exclusion.

Perfect exclusion. Under perfect exclusion, the owner allows no one else to use
his goods. The direct transaction costs of perfect exclusion are likely higher than those of
no exclusion, but may be higher or lower than for partial exclusion. Perfect exclusion
may be cheaper than partial exclusion, where, for example, one need only build a strong
fence, and then all are excluded, while partial exclusion would require a guard at the gate
admitting and excluding different people. Perfect exclusion may, however, be harder to
achieve than partial exclusion, if every discrete act of exclusion requires an independent
investment. For example, if a hunter in a hunter gatherer society needs to fend off each
new claimant to the spoils of the hunt, then partial exclusion may be cheaper than perfect
exclusion. This characteristic underlies the claims of the tolerated theft model in
behavioral ecology, which suggests that sometimes hunters or foragers permit others to
share in their catch not within a social framework of sharing and gift giving, and without
expectation of reciprocity or the acquisition of social status. Instead, there is “tolerated
theft,” in the sense that others take from the good with no expectation of retaliation and
no expectation of reciprocation. This occurs, within that framework of analysis, when the
cost of exclusion is higher than the gains from exclusion. 77 This descriptive phenomenon
is also recognized—though not interpreted through the prism of methodological
individualism—as “demand sharing” by anthropologists who study sharing practices
from a cultural perspective. 78 This form of sharing becomes a form of partial sharing,
rather than of “open access,” because not everyone will be tolerated, only those within a
group that is sufficiently large to prevent outsiders from accessing the shared good.

Whether or not perfect exclusion is more expensive to implement than partial

exclusion, it is clear that one of the costs of perfect exclusion is the opportunity costs of
partial inclusion. In the case of shareable goods of the type we discuss here, that have an

77
See N. Blurton Jones, A selfish origin for human food sharing: Tolerated theft, 5 Ethology and
sociobiology, 1-3 (1984); N. Blurton Jones, Tolerated Theft: suggestions about the ecology and evolution
of sharing, hoarding and scrounging, 26 Social Science information 31-54 (1987); B Winterhalder, A
marginal model of tolerated theft, 17 ethology and sociobiology, 37-53 (1996), R. L. Bliege Bird and D.W.
Bird, Delayed Reciprocity and Tolerated Theft, the behavioral ecology of food-sharing strategies, 38
Current Anthropology 49-78 (1997), David Sloan Wilson, Hunting Sharing and Multilevel Selection, The
Tolerated theft model revisited, 39 Current Anthropology 73-97 (1998).
78
See James G. Carrier, Property and social relations in Melanesian anthropology, in Property Relations,
Renewing the Anthropological Tradition (C.M. Hann ed.) (1998), 85-103.

26
overcapacity relative to the individual owne r’s needs, the owner has an opportunity to
benefit if she can get any positive utility from allowing access to the excess capacity.
This is so whether the sharing provides economic returns in a secondary market, cost
avoidance by permitting open access, social and psychological returns in social sharing
arrangements, or the simple pleasure of fulfilling a taste for altruism.

Partial exclusion. This represents a cluster of strategies that are the most
interesting from our perspective. These entail permitting some set of others, who are not
the owner, to use the resource, but nonetheless limiting the set of permitted users to some
number less than anyone who wants it.

Nonselective partial exclusion. This option refers to the simplest approach to

partial exclusion—nonselective partial exclusion. Under this category, the selection
criterion is independent of the characteristics or choices of the owner or the users
permitted to use the good. Instead, the total amount shared is set by the capacity of the
good, the demand of the owner—which together determine the amount of unused and
available capacity—and some non-specific selection criterion. First come, first served is
a simple example of such a sharing algorithm. The Northern Virginia corridor practice of
body-snatchers and slugs are a form of nonselective partial exclusion on a first come, first
served basis. Similarly, the Internet transmission control protocol, TCP, manages the
capacity of routers on a non-selective, partial exclusion basis, by forwarding all packets
on a first come first served basis, and dropping later packets if they arrive when it is
overloaded, causing the senders to back off and slow down or try other routes. Other,
more elaborate algorithms can be defined, but will still be non-selective as long as they
do not rely on characteristics that are specific to individuals who are seeking permission
to use the excess capacity. That the individuals need not be determined on a case-by-case
basis is likely to lower the transaction costs involved in instantiating the partial
permission framework. The primary cost of nonselective partial exclusion is the
opportunity cost of the utility that could be gained from selective exclusion.

Selective exclusion.

Market selection. This is the secondary market option. The owner of the unit that
produces welfare enhancing functionality allows those who pay market prices to gain
access to the functionality, and excludes those who do not pay. This option is typified by
the costs commonly associated with market transactions. These include defining the
property and use rights, specifying the uses permitted and contracting for them, metering
the functionality used, and monitoring and enforcing compliance. We have long
understood transaction costs to be sufficiently nontrivial to affect the choice of how the
economy organizes access to and use of resources. 79

Social selection. Under this option, the owner excludes many putative users of
the functionality, and permits use only to those who meet the owner’s social criteria. This

79
This is , after all, the point for which Ronald Coase was awarded the Nobel Prize in economics. Ronald
Coase, The Nature of the Firm, 4 Economica 386 (1937); Ronald Coase, The Problem of Social Cost, 3 J L
& Econ. 1 (1960).

27
obviously includes the lobster gangs in Maine that Acheson described in the early
common property regime literature, 80 and the socially-selective swimming pools and golf
clubs often analyzed in the club goods literature. 81 They also include wide ranges of
normal human experience, like sharing the refrigerator with one’s household members
and invited guests, but not with others, inviting an acquaintance, but not a stranger, to
share one’s usufruct in the table at the café, etc. Once one begins to define the various
forms of temporary or stable proprietary-type interests we have in the things in the world
around us, and to couple them with the pervasive social sharing practices we use—some
of which may be purely redistributive, some reciprocal, some voluntary, some obligation-
based within a given set of social understandings, one sees that social sharing of is
ubiquitous in everyday life.

Like markets, social exchange systems entail transaction costs. These may
include the definition of social norms, the definition and policing of social group
boundaries—who is in and who is out—the monitoring and enforcement of the terms of
social sharing, which has been the subject of much empirical literature on the willingness
of individuals to incur costs to enforce reciprocity and compliance with other social
expectations, 82 etc. Just as we have pervasive, long standing investments in enabling
markets—like building and maintaining a legal system, a fiscal system, physical
marketplaces, etc., so too we have standing investments in social sharing. Ranging from
widespread cultural schooling in socially acceptable and desirable behavior—like
teaching children to share their toys in the sandbox—to the gossips who shame
individuals into compliance.

2. The general shape of transaction costs-based choice among frameworks

It is now fairly simple to outline the shape of (though not necessarily to perform)
comparative transaction costs analysis of the choice among these various strategies
towards disposing of the excess capacity of shareable goods.

When any form of exclusion is more costly than permitting anyone to use the
resource, owners will simply allow others to use the goods or resources they own. When
the costs of either permitting everyone to use the resource or good or sharing it are
greater than the cost of simple perfect exclusion, owners will simply exclude everyone
from the good. Given that “the cost” includes opportunity costs caused by congestion,
and that for perfectly private—rival and nonrenewable—goods “congestion” means loss
of the full value of the good to its owner, this condition would obviously be fulfilled for
perfectly private goods that are more valuable than the cost of exclusion. This also

80
See Acheson, supra, note 70.
81
See supra, note 69.
82
See Ernest Fehr and Klaus M. Schmidt, Theories of Fairness and Reciprocity, Evidence and Economic
Applications, Institute for Empirical Research in Economics, University of Zurich, Working Paper No. 75
(February 2001); Bruno S. Frey and Stephan Meier, Pro-Social Behavior, Reciprocity, or Both? Institute
for Empirical Research in Economics, University of Zurich, Working Paper No. 107 (February 2002);
Ernest Fehr and Armin Falk, Psychological Foundations of Incentives, Schumpeter Lecture, Annual
Conference of the European Economic Association 2001; Samuel Bowles and Herbert Gintis, Social
Capital and Community Governance, 112 The Economic Journal F419-F436 (2002); Kahan, supra note 2.

28
includes the Coasean insight that where entitlements were inefficiently defined initially,
but the cost of implementing selective market exclusion to find the more efficient
allocation is greater than the cost, including opportunity cost, of perfect exclusion—that
is, of retaining entitlements where they began—perfect exclusion will be chosen and
entitlements will remain where initially assigned. But it also maps the limitation of that
insight that characterizes the social norms literature. The fact that the market
transactional framework may be too costly for transacting around inefficiently delineated
entitlements does necessarily mean the same is true of social relations-based transactional
frameworks. Social norms may shift around the entitlements if transacting around the
entitlements through the social system is less costly than doing so through the market, in
which case the inefficiency need not be solved by state/judicial intervention to reallocate
the entitlements. 83

When the costs of refusing to exclude anyone, or refus ing to permit anyone to use
the good, in both cases including the opportunity cost of failing to permit or exclude
some, are greater than the costs of one or the other form of selective exclusion, selective
exclusion will occur. When the cost of market selection are greater than the costs of
social selection, social sharing will occur, and when the costs of social sharing are greater
than the costs of market selection, market selection will occur. 84

The problem of understanding how to harness the excess capacity exhibited by

shareable goods is to compare perfect exclusion to partial exclusion, and then to decide
among nonselective and selective market and social partial exclusion. That is, to answer
why and when it may be more costly for people not to share at all, and then to answer
why and when it may be more or less costly to exclude on some nonselective model, as
opposed to sharing socially or participating in a secondary market for excess capacity.

First, recall that there is some subset of agent s who own shareable goods, who
only use up part of the capacity of their goods and do not require or cannot absorb more
of it. Giving that excess capacity away is costless to them, except for the transaction
costs of giving the excess capacity to others. This means that they should prefer to have
their excess capacity used rather than be idle whenever there is any positive utility to
them from the fact that the excess capacity is used, net of the cost of sharing/reselling it.
If the costs of perfect exclusion were equal to the costs of partial exclusion, then the
owners of shareable goods would choose to exclude only partially whenever there was
any positive utility to sharing. It is trivial that if we assume that the cost of perfect
exclusion were always higher than the cost of partial exclusion, whether selective or not,
then the owner would permit some use of his or her good as long as the disutility from
sharing was no greater than the difference in exclusion costs. And where the costs of
partial exc lusion are higher than the costs of perfect exclusion, the owner will share or

83
Indeed, this has been a core claim of the social norms literature for almost 20 years. See Robert C.
Ellickson, Of Coase and Cattle, Dispute Resolution Among Neighbors in Shasta County, 38 Stan. L. Rev.
623 (1986).
84
See Henry E. Smith, Exclusion vs. Governance: Two Strategies for Delineating Property Rights, 31 J.
Legal Studs. S453 (2002) (describing prevalence of commons-based systems and property-based systems
as a function of comparative transaction costs in each).

29
resell his or her excess capacity when the utility from sharing or reselling will exceed the
difference in cost between partial exclusion and perfect exclusion.

Second, we have fairly extensive studies of the costs of the two forms of selective
exclusion. The transaction costs literature analyzes the sources and types of transaction
costs. 85 The cluster of literatures concerned with various non- market mechanisms—
social trust and reciprocity, 86 common property regimes, 87 the gift and exchange
anthropology literature 88 —offers us insight into the sources and scope of “transaction
costs” associated with social selective exclusion. I assume that selective partial exclusion
will always have higher information costs than nonselective partial exclusion, because the
former will always require more information about specific transactions in order to
implement the selection criterion, whereas any nonselective algorithm that can be applied
mechanically will require the minimal amount of information—that a transaction is
sought to be had. Selective partial exclusion will therefore only outperform nonselective
partial exclusion when the selectivity provides some positive return as compared to
nonselective partial exclusion. This is trivial in the case of markets, because the selection
criterion is willingness and ability to pay, and payment must be more than the cost of
selecting for those willing to pay more from those willing to pay less. Similarly, the
social rewards of selectivity must exceed the added cost of selection in the social
exclusion model. Bestowing a benefit on loved ones is probably the most common
benefit for social selectivity, as we prefer our family and friends to strangers when we
decide to whom we will lend our car or book.

Imagine a 200 square foot swimming pool in a back yard. The cost of perfect
exclusion is the cost of building a fence at the perimeter (given a background investment
in legal enforcement of and respect for property rights.) This is nontrivial but not high.
This cost is higher than the direct cost of permitting free access by not putting up a fence.
Given congestion costs, displacement, dirt, risk of liability etc., the option of open access
is probably more costly than the option of perfect exclusion. The cost of partial exclusion
includes (1) the cost of perfect exclusion plus (2) the cost of selective admission. It is,
then, greater than the cost of perfect exclusion. Selective admission will nonetheless be
granted when its return is higher than the added cost. Admitting friends and family
members is relatively low cost. It is easy to identify and differentiate those who have
permission from those who do not, and requires little or no additional monitoring,
contracting, enforcement costs because it relies on a preexisting set of social relations that
exist independently of the decision to admit to the swimming pool. The rewards are
85
See, e.g., Ronald Coase, The Firm, the Market, and the Law 6 (1988) (defining the relevant costs as
search and information costs, bargaining and decision costs, policing and enforcement costs); Robert C.
Ellickson, The Case for Coase and Against “Coaseanism,” 99 Yale L. J. 611, 614-16 (1989) (offering a
functional taxonomy of transaction costs, including get-together costs, decision and execution costs, and
information costs). Calabresi & Melamed point out explicitly that exclusion costs are a part of negotiation
costs—leaving unstated but obvious that enforcing the pre-bargaining entitlements is crucial to defining
what is to be gained and transferred in the transaction itself. Guido Calabresi and Douglas Melamed,
Property Rules, Liability Rules, and Inalienability, One View of the Cathedral, 85 Harv. L. Rev. 1089,
1095 (1971).
86
See supra, note 82.
87
See supra note 70.
88
See supra, note 5.

30
social psychological in nature, and perhaps reciprocal for in kind exchanges. Admitting
strangers who are willing to pay is more expensive. It requires identification, contracting,
collection, enforcement, etc. Rewards are, obviously, monetary. Given the small size of
the pool and its likely rapid congestion, there is a low ceiling on the monetary rewards
obtainable from market-based admission. While thoroughly culturally and class-specific,
the example offers an intuitive sense of the shape of the analysis involved.

A similar framework can be mapped onto our motivating problems: car-pooling

and Internet-based distributed computing. In both cases, the marginal cost of perfect
exclusion for any given time frame is negligible. Both types of goods come with
exclusion mechanisms built in as part of the lumpy “unit”—be they door locks or an
operating system that requires a user’s initiation to run programs on the CPU. Both could
suffer substantial congestion costs as well as degradation if given over to open sharing.
Both are therefore only likely to be shared, if at all, on a partial exclusion basis. In both
cases the primary perceived cost of nonselective partial exclusion is security—be it
picking up hitchhikers on a first come, first served basis, or allowing anyone who wishes
to run any program they wish on one’s computer. Otherwise, the comparative costs of
selective versus nonselective partial exclusion are more ambiguous. Which of the two
approaches will fill three or four empty seats in a commuter car more efficiently? Will a
habit of picking up at one or two meet points lower the marginal coordination cost such
that it will be lower than stopping for the first hitchhiker, and will it be sufficiently low
cost to outperform a stable set of commuting relationships, as is the case with body
snatchers and slugs? Which will require greater intervention on the part of the
computer’s owner to assure that the resource is shared up to, but not beyond, the excess
capacity? In the case of WiFi access points, for example, it is simple for the owner to set
the gateway to full sharing, enabling any user to connect automatically. Selectively
admitting only some users requires the owner either to select a password and provide it to
all whom the owner wishes to admit, and for those others to change their configuration to
meet this one access point, or to get unique identifying numbers of each admitted user
and exclude others. Both for automobiles and for personal computers, then, perfect
exclusion is a simple and cheap choice, open sharing is not a strong contender, and partial
exclusion, is possible both on a nonselective (picking up any hitchhiker or slug on a first
come first served basis, leaving one’s WiFi gateway on the default “sharing” setting) and
selective basis, which can occur both on a market and social basis: car-pooling and taxis,
project-specific CPU cycle donations like SETI@Home or Folding@Home, more or less
explicit reciprocity-based file-sharing system designs, such as Gnutella or Kazaa, as well
as cybercafés and commercial WiFi hotspots.

3. Transaction costs analysis of markets and sharing

Both markets and social exchange are forms of selective exclusion. They share
many of the basic costs of physical exclusion, given by the technology relating to the
resource in question and its use. The primary systematic differences between these two
forms of selective exclusion in terms of transaction costs are related to information and
enforcement costs. There are two distinct differences in terms of information costs
between markets and states, on the one hand, and social relations based production, on

31
the other hand. The first is the degree of crispness of the boundary of each transaction.
The second is the information opportunity cost of each approach—which largely trades
off texture for computability. A third information advantage is one enjoyed by
decentralized systems more generally—whether for sharing or through eBay- like
mechanisms—as compared to more centralized systems like firms and bureaucracies.
That is the fact that they have fewer communications requirements, and fewer
opportunities to lose information or to delay action. This information advantage trades
off information for control—and hence declines as the conditions within which a resource
will be deployed become more stable and predictable. The other main transaction cost
difference between markets and social sharing system are enforcement costs. Assuming
the information has been generated in each system—which is the subject of most of this
subsection—markets rely more heavily (though not exclusively) on formal enforcement,
while social relations rely on informal enforcement mechanisms studied in the literature
on social norms and reciprocity. Which will be more costly depends on how costly
punishing in the social system is relative to the enforcement process for property and
contract claims in the particular market, how well developed the market/legal system are
relative to the relevant social system, etc. These are largely empirical questions that I
will not further pursue here.

Crispness

A market transaction, in order to be efficient, must be clearly demarcated as to

what it includes, so that it can be priced efficiently. That price must then be paid in
equally crisply delineated currency. Even if initially a transaction may be declared to
involve sale of “an amount reasonably required to produce the required output”, for a
price “ranging from x to y,” at some point what was provided and what is owed must be
crystallized and fixed for a formal exchange. The crispness is a functional requirement of
the price system, and derives from the precision and formality of the medium of
exchange—currency—and the ambition to provide refined representations of the
comparative value of marginal decisions through denomination in the exchange medium
that represents these incremental value differences.

Social exchange, on the other hand, does not require the same degree of crispness.
As Maurice Godelier put it, “the mark of the gift between close friends and relatives … is
not the absence of obligations, it is the absence of ‘calculation.’”89 There are, obviously,
elaborate and formally ritualistic systems of social exchange, both in ancient societies
and modern. There are common property regimes that monitor and record calls on the
common pool very crisply. These tend to resemble markets and market-based firms as the
crispness increases. 90 In many of the common property regimes one finds mechanisms of
bounding or fairly allocating access to the common pool that more coarsely delineate the
89
Godelier, supra, note 5, at 5.
90
An extreme classic case of a system described as a “commons” type arrangement that seemed to be more
of a market in scrip than a common property regime was the case of water scrip in Alicante. As Ostrom
described that irrigation system, water availability was divided up into increments of fractions of minutes
of open irrigation gates, represented by paper scrip, for which there was a perfectly liquid market,
facilitated by both auctions and two-party exchanges, and which were used as collateral and as an otherwise
fungible medium of exchange. See Ostrom, Governing the Commons, supra note 70, at 78-82.

32
entitlements, behaviors, and consequences. 91 In modern market society, where we have
money as a formal medium of precise exchange, and where social relations are more fluid
than in traditional societies, social exchange certainly occurs as a fuzzier medium of
exchange. Across many cultures, generosity is understood as imposing a debt of
obligation, but neither the precise amount of value given, nor the precise nature of the
debt to be repaid, or its date of repayment, need necessarily be specified. 92 Actions enter
into a cloud of good will or membership, out of which each agent can understand him or
herself as being entitled to a certain flow of dependencies or benefits in exchange for
continued cooperative behavior. This may be an ongoing relationship between two
people, a small group like a family or group of friends, and up to a general level of
generosity among strangers that makes for a decent society. The point is that social
exchange does not require defining: “I will lend you my car and help you move these five
boxes on Monday, and in exchange you will feed my fish next July,” as it would require
“I will move five boxes on Tuesday for $100, six boxes for $120,” etc. This does not
mean that social systems are cost free; far from it. They require tremendous investment,
acculturation, maintenance etc. This is true every bit as much as it is true for markets or
states. Once functional, however, social exchanges require less crispness at the margin.

Both social and market exchange systems require large fixed costs—the setting up
of legal systems, enforcement systems, etc. for markets, and the setting up of social
networks, norms, and institutions for the social exchange. Once these initial costs have
been invested, however, once both background systems are in place, market transactions
systematically require a greater degree of precise information about the content of
actions, goods, and obligations, and greater precision of monitoring and enforcement on a
per-transaction basis than do social exchange systems.

Because the difference in cost is at the margin per-transaction, it increases linearly

with the number of discrete transactions necessary to obtain a sufficient quantum of
functionality flow to achieve the goals of a person relying on functionality flows from the
owners of units. In other words, imagine that in order to run one computation one needs
the excess capacity of only one computer, and the difference in transaction costs between
using market based clearance and social exchange is $x. If, instead, in order to run one
computation the person seeking to use excess capacity of others needs to pool the excess
processing power of two idle computers, then the cost difference is $2x per computation,

91
Acheson’s classic study of the Lobster Gangs of Maine, James M. Acheson, The Lobster Gangs of Maine
(1988), for example, describes a much coarser and collectivist system of entitlements than those of
Alicante, described in the preceding note. There, harbor gangs’ entitlements were collective to a fishing
area broadly defined. Internal div ision was usufruct-based, leaving substantial room for internal allocation
on a combination of unilateral action and social standing. Similarly the time-division techniques used in
Swiss pastures that Ostrom describes have a coarser outline than the Alicante scrip system, or even the
other, more closely policed Spanish irrigation systems she describes. Ostrom, Governing the Commons,
supra note 69 at 61-65.
92
See. E.g., Joseph Henrich, Robert Boyd, Samuel Bowles, Colin Camerer Ernst Fehr, Herbert Gintis, and
Richard McElreath, Cooperation, Reciprocity and Punishment in Fifteen Small-scale Societies, Am Econ.
Rev. (2001) (suggesting that this type of indebtedness is responsible for an unusually high rejection rate of
offers in a wide ranging dictator game experiment, in those cultures where receiving gifts was most clearly
associated with unpredictable indebtedness).

33
and so forth. This pattern suggests that whe n slack capacity is located in small dollops
distributed among many owners, it becomes increasingly more costly to harness that
excess capacity through markets than through social exchange systems. Given that the
interest of each individual owner to buy as little excess capacity as technically feasible
places a downward pressure on the expected amount of each unit’s excess capacity,
shareable goods are likely to have this characteristic—widespread distribution of excess
capacity in smallish dollops. This is precisely the domain in which shareable goods
become very interesting as objects of social sharing, rather than market exchange, and in
which the y describe well carpooling, distributed computing, file sharing, or ad hoc mesh
wireless networks.

Rendering requirements and lossiness

Both markets and state based production have rendering requirements that are
lossy by comparison to social production and exchange systems. They lose information
in the translation from the way the world is perceived by the agents most immediately
affected by it and capable of acting, to the language in which the decision must be
rendered given the requirements of the decision mechanism used to direct the action.

Each modality of production has its own ways of encoding, storing, and
transmitting information from those observing the conditions and opportunities for
action, to those who are doing the calculation of the comparative attractiveness of
possible actions and the decision as to what action should be taken—be they centralized
or distributed, be it from the eyes to the brain or from the sentries to the general. This
takes the form of prices in the market or of administrative reports in the state or firm. In
both cases, the actual richness of the world is transposed into formally structured
modalities of representation whose logic is defined by the internal requirements of
representation and processing in the system into which the information is fed—be it price
in the market or bureaucratic decision making in the state.

Information about social relations relies not on formal structure, but on tacit,
learned and culturally reproduced capacities to read and interpret social settings. This
may well present problems of clarity, comparability, and formal computability of
problems, but it allows more “analog,” storytelling- like modalities of communicating
information with great subtlety and nuance. Social communications are more textured
than the more formal systems of organizing information in market and state production.
The texture can come from direct express communication about details, as opposed to
translation into prices or formal categories, or from narratives that tap into culturally
accessible reasons for action (“help fight AIDS”, “find extraterrestrial life”). It can also
come from observation of others or of the context of action filtered through a common
cultural filter that allows the observer to treat the actions or observed facts about the
world as legible and intelligible cues about context, reasons for action, and desirability of
action. Texture also comes from practice and the tacit learning or information acquisition
that occurs as part of practice in and adaptation to the social and material environment.

34
 The tradeoff between formal clarity and computability, on the one hand, and
texture on the other hand, suggests that social systems will be relatively weaker in
organizing actions for which there are clear, computable, but fine differences between
alternative courses of action. Conversely, such systems will be particularly valuable as
information processing systems where the context, precise nature of the alternative
possible actions, and range of possible outcomes are persistently vague or difficult to
specify formally. 93 To the extent that information about production opportunities,
cooperative actions, and motivational inputs can be represented effectively through social
communications systems, it would represent a more complete statement of the factors
relevant to agent’s decisions than could information available in systems—like the state
and the market—that require formalization of the data so that they can be represented
adequately for the particular process of computation defined as necessary to a decision in
those systems. 94 This is particularly important under conditions of persistent uncertainty
(where uncertainty cannot be eliminated at an acceptable cost). Presumably, there will be
ranges where decisions could be improved by formal representation and computation,
ranges where these will systematically fail to represent all factors relevant to an agent,

93
The value of nonmarket systems in the presence of high uncertainty is not original here. Arrow mentions
it in Kenneth Arrow Gifts and Exchanges, 1 Phil. & Pub. Aff. 343, 351-55 (1972), as an explanation of
Titmuss’s finding that market-based blood was more tainted than donated blood. For a more complete
discussion of the Titmuss-Arrow debate see infra, Part IV.B. Arrow also mentioned it as a reason that
nonprofit hospitals may be better than for profit hospitals in Kenneth Arrow, Uncertainty and Welfare
Economics of Medical Care, 55 American Economic Review 941 (1963). This latter position was
developed into a full blown theory of the comparative advantage of nonprofits by Henry Hansmann in
Hansmann, The Ownership of Enterprise 228 (1996) (explaining that “nonprofit firms commonly arise
where customers are in a peculiarly poor position to determine, with reasonable cost of effort, the quality or
the quantity of the services they receive from a firm. As a consequence, assigning ownership to anyone
other than these customers would create both the incentive and the opportunity for the customers to be
severely exploited. Yet at the same time, the customers are so situated that the cost to them of exercising
effective control over the firm are unacceptably large relative to the value of their transactions with the
firm. The solution is to create a firm with no owners—or, more accurately, to create a firm whose
managers hold in trust for customers. In essence, the nonprofit form abandons any benefits of full
ownership in favor of stricter fiduciary constraints on management.”) These claims about nonprofit and
nonmarket donation and uncertainty are different from my own focus in one crucial way. Both Arrow and
Hansmann locate the “fix” that nonprofits or nonmarket actors provide in the alignment of incentives of the
agents and “principals” or “customers.” In the case of nonprofits, the nondistribution constraint means that
no class of “owner”-patrons governs the firm and can capture the gains from exploiting the ill-informed
class of patrons, and hence there is no class whose interests are severely misaligned with the potentially -
exploitable class. In the case of Arrow and blood donation, without an ability to be paid for one’s tainted
blood, the donative motivation to help others no longer drives the person with disease-carrying blood to
provide it. My own focus here is not on the alignment of incentives when operating through a market
(though nothing in my approach denies this effect), but on the idea that embedding an uncertain transaction
in social exchange introduces social signals into the transaction, thereby reducing uncertainty and the
information asymmetry—it is not alignment of incentives only that is at stake, but freeing the transaction
from the strictures of price-mediated information exchange that improves the quality of action in the face of
uncertainty.
94
Note that, to the extent that a nonprofit is run like a firm, and interacts with its “patrons” as a firm would,
it would not have this uncertainty reduction characteristic. It is when non-market behavior occurs through
social interactions among individual participants that socially-legible information can be communicated. A
market-based actor who can communicate socially (a “chic” nightclub) will reduce uncertainty (as to
whether to go into this club or that, or whether to go to a club or stay at home), while a non-market actor
communicating bureaucratically or through market-pricing will not.

35
and ranges where any two or three of the systems could render the decisions clearly
enough for a decision—easy cases—where the ir comparative advantage must be found
elsewhere.

Decentralized systems and information

Finally, the phenomenon I focus on in this article is systematically decentralized.

Shareable goods are private goods controlled by their private owners, shared in broad
social patterns among more or less weakly related individuals—much as an idealized
market (or actual one, like eBay) might work. In this, they are different from many
actual market-based or state-based production systems—which tend to be more
centralized or firm/bureaucracy based.

The “centralized/distributed” distinction as I use it here is not binary. It is a range

property of systems of human action in context. It describes the distance between the
occurrence of an opportunity for human action in an environment and the authority for
directing whether and how the agent confronted with the opportunity will act on it.
“Distance” describes any parameter that separates the authority from the capacity to
identify the presence of, and act on, the opportunity. This may describe organizational
and institutional characteristics, geographic distance, technical constraints of information
and authorization flow, etc. The point to see is that the more a system is organized
centrally, the more room there is for information loss between the actual state of the
world as perceived by those agents closest to the opportunity for action and the
perceptions of agents with authority to decide that an action should be undertaken, and
vice versa. Any system, whether a market based firm, a state based bureaucracy, or a
social organization like the Catholic Church, can be centralized. So too can there be
distributed models of production in each, though the formal constraints of accountability
and legal authority of the state makes true devolution of power to individual agents who
act on behalf of the state difficult. To the extent that shareable goods in fact are shared in
practices that are closer to the distributed end of the spectrum, it adds an additional
reason to think that sharing in social production systems loses less information:
distributed systems lose less information. This overarching claim about sharing systems
captures within it the many empirical claims about local knowledge, active monitoring
and enforcement, etc. that have been made on behalf of common property regimes and
community-production systems in the literature that has described and explained the
sustainability and, indeed, efficiency, of these non- market based organizational forms. 95

B. Motivation

Transaction costs-based institutional analysis normally stops here—identifying

and comparing transaction costs across institutional settings. There is, however, another,
independent dimension to understanding sharing—that of motivation. The organizers of
distributed computing projects, for example, focus explicitly on how to motivate
contributions. 96 Practitioners of free software development 97 as well as the academics

95
See Ostrom, supra note 70.
96
See supra, text accompanying notes 66-67

36
who study them98 similarly spend a good bit of energy studying motivations. One
question is what is the source and form of non-monetary rewards. The other is the
question of crowding out—that is, whether the presence of market-based, monetary
rewards for an action undermines or improves non- monetary motivations for that action.

The theoretical and empirical debate over whether monetary motivations and
some set of social-psychological motivations crowd each other out emerged initially in
the debates of the early 1970s over blood policy. Until the early 1970s, the vast majority
of blood donors in the United States were compensated in cash or indirectly, via some
type of blood exchange or insurance system. 99 In a major work, Richard Titmuss
compared the U.S. and British blood supply systems, the former largely commercial at
the time, organized by a mix of private for-profit and non-profit actors, the latter entirely
voluntary and organized by the National Health Service. Titmuss found that the British
system had higher-quality blood, as measured by the likelihood of recipients contracting
hepatitis from transfusions, 100 less blood waste, and fewer blood shortages at hospitals.
Titmuss also attacked the U.S. system as inequitable, arguing that the rich exploited the
poor and desperate by buying their blood. He concluded that an altruistic blood
procurement system is both more ethical and more efficient than a market system, and
recommended that the market be kept out of blood donation to protect the “right to
give.”101 Titmuss’s argument came under immediate attack from economists. Most
releva nt for our purposes here, Kenneth Arrow agreed that the differences in blood
quality indicated that the U.S. blood system was flawed, but rejected Titmuss’s central
theoretical claim that markets reduce donative activity. 102 Arrow reported the alternative
hypothesis held by “economists typically”, that if some people respond to
exhortation/moral incentives (donors) while others respond to prices and market
incentives (sellers), these two groups likely behave independently – neither responds to
the other’s incentives. 103 Thus the decision to allow or ban markets should have no effect
on donative behavior—though removing a market could in fact remove incentives of the

97
See Eric Raymond, The Cathedral and the Bazaar, (1998), available at
http://www.tuxedo.org/~esr/writings/cathedral-bazaar/; Eric Raymond, Homesteading the Noosphere, (1998), available
http://www.firstmonday.dk/issues/issue3_10/raymond/.
98
See, e.g. Josh Lerner and Jean Tirole, Some Simple Economics of Open Source, 50 J. Indus. Econ. No. 2 (2002).
Eric von Hippel in particular has provided both theoretical and empirical support for the importance of the use value
gained by users in a user-driven innovation environment, both in software and elsewhere, see e.g., Eric von Hippel,
Innovation by User Communities: Learning from Open Source Software 42 Sloan Management Review 82 (2001).
99
RICHARD M. TITMUSS, THE GIFT RELATIONSHIP : FROM HUMAN BLOOD TO SOCIAL POLICY 94 (1971); see
also DOUGLAS STARR, BLOOD: A N EPIC HISTORY OF BLOOD AND COMMERCE 174-75 (1998) (explaining
that replacement fees were approximately $25 per pint in the late 1940s).
100
In the UK, this rate was less than 1%, and in one study was as low as 0.16%. TITMUSS, supra note 99, at
154-55. In the U.S., the rate may have been as high as 3.6%. Id. at 145-46.
101
TITMUSS, supra note 99, at 245-46. At least one contemporary historian casts some doubt on Titmuss’s
analysis:
In retrospect, Titmuss’s critique was unfair. His thesis largely ignored the American Red Cross,
which accounted for about 40 percent of the blood collected in America. . . . Instead, he focused
on the booming plasma industry and the rising number of for-profit blood banks. What he
criticized was not the complex reality of America’s blood resource, but a caricature . . . . Titmuss’s
book hit a public nerve.
STARR, supra note 99, at 225.
102
Kenneth J. Arrow, Gifts and Exchanges, 1 PHIL. AND PUB. A FFAIRS 343 (1972).
103
Id. at 350-51.

37
“bad blood” suppliers to give blood, thereby improving the overall quality of the blood
supply. 104 Titmuss’s had not established his hypothesis analytically, Arrow argued, and
its proof or refutation would lie in empirical study. 105 Theoretical differences aside, the
United States blood supply system did in fact transition to an all- volunteer system of
social donation since the 1970s. 106 In surveys since, blood donors have reported that they
“enjoy helping” others, experienced a sense of moral obligation or responsibility, or
exhibited characteristics of reciprocators after they or their relatives received blood. 107

A number of scholars, primarily in psychology and economics, have attempted to

resolve this question both empirically and theoretically. 108 The most systematic work
within economics is that of Bruno Frey and various collaborators. 109 Frey imports a
model of motivations from psychology110 and combines it both with analytic modeling
and empirical evidence to show that the introduction of money, or prices, for an activity,
may in fact lower the level of that activity. He calls this “the crowding out effect.”

A simple statement of this model is that individuals have intrinsic and extrinsic
motivations. Extrinsic motivations are imposed on individuals from the outside, taking

104
Id., 351-55. This was similar to Robert Solow’s critique. Solow took issue with much of Titmuss’s
empirical work and ascribed the UK’s advantage over the U.S. in part to the “the tight little island[’s] . . .
tradition of civic-mindedness.” Because hepatitis had to be self-reported – no hepatitis test existed at the
time – Solow found the lower quality of blood in the U.S. system to be largely unsurprising: compared to
voluntary blood donors, blood sellers are 1) more likely to have hepatitis and 2) face incentives to conceal
their illness. Robert M. Solow, Blood and Thunder, 80 YALE L.J. 1696, 1705 (1971).
105
Arrow Gifts and Exchanges, at 351.
106
See Kieran Healy, Embedded Altruism: Blood Collection Regimes and the European Union’s Donor
Population, 105 A M. J. OF SOCIO. 1633 (2000); JANE A. PILIAVIN & PETER L. CALLERO, GIVING BLOOD:
THE DEVELOPMENT OF AN ALTRUISTIC IDENTITY 1 (1991) (explaining that the Department of Health,
Education, and Welfare announced a policy strongly discouraging blood sales in 1973; a subsequent
regulation requiring differential labeling of blood from voluntary and paid donors also contributed to the
“virtual elimination of commercial whole-blood banks”); American Association of Blood Banks,
Frequently Asked Questions, http://www.aabb.org/All_About_Blood/FAQs/aabb_faqs.htm. Since the
1970s there has been essentially no commercial collection of whole blood in the U.S., and insurance-based
individual responsibility systems are becoming rarer. See STARR, supra note 99, at 219. In 2001, 8 M
volunteers donated 15 M units of whole blood and red blood cells in the U.S.
http://www.aabb.org/All_About_Blood/FAQs/aabb_faqs.htm. This likely represents more than 5% of the
age-eligible population. PILIAVIN & CALLERO , supra note 106, at 2, and approximately 40% of age-eligible
Americans have given blood at some point in their lives. Id. At 24. European countries also appear to
collect whole blood exclusively from voluntary donors, following an official European Union policy
announced in 1989. See Healy, supra note 99, at 1638. Survey research shows that blood donors are
common in some European countries, e.g., France, where 44% of age-eligible residents have given blood,
and much rarer in others, e.g., Luxembourg, where only 14% of age-eligible residents are donors. See id.
107
PILIAVIN & CALLERO, supra note 99, at 35 (describing motivations of first time donors); id., at 181-90
(describing social norms around donation).
108
See Bruno S. Frey and Reto Jege, Motivation Crowding Theory: A Survey of Empirical Evidence, 15(5)
J. Economic Surveys 589 (2001) (surveying the literature).
109
See Bruno S. Frey, Not Just for Money (1997); Brnuo S. Frey, Inspiring Economics 52-72 (2001).
110
He traces the origin of the line of psychology literature he follows to Edward L. Deci, Effects of
Externally Mediated Rewards on Intrinsic Motivation, 18 J. Personality and Social Psychology, 105-15
(1971). Ironically, then, at least one answer to Arrow’s critique of the lack of theoretical causal mechanism
for crowding out already existed, but in another field. The line of literature is crystallized in Edward L.
Deci and Richard M. Ryan, Intrinsic Motivation and Self-Determination in Human Behavior (1985).

38
the form of either offers of money for, or prices imposed on, behavior, or threats of
punishment or reward from a manager or a judge for complying with, or failing to
comply with, specifically prescribed behavior. Intrinsic motivations are reasons for
action that come from within the person, such as pleasure or personal satisfaction. 111
Extrinsic motivations are said to “crowd out” intrinsic motivations because they (a)
impair self-determination—that is, people feel pressured by an external force, and
therefore feel over-justified in maintaining their intrinsic motivation rather than
complying with the will of the source of the extrinsic reward; or (b) impair self-esteem—
they cause individuals to feel that their internal motivation is rejected, not valued, and as
a result individuals reduce their self-esteem, causing them to reduce effort. 112 It is not
self-evident in Frey’s own rendition why offering to pay money for an activity that an
agent is free to forego has the same psychological effect of impairment of self-
determination or self-esteem as the imposition of a penalty/pric e on the agent’s failure to
act, which the agent cannot avoid, but the intuition is not difficult to explain. It depends
on a culturally-contingent notion of what one “ought” to do if one is a well-adjusted
human being and member of a decent society. Being offered money to do something you
know you “ought” to do, and that self- respecting members of society do, implies that the
offeror believes that you are not a well-adjusted human being or an equally- respectable
member of society. An alternative causal explanation is formalized by Roland Benabou
and Jean Tirole, who claim that the person receiving the monetary incentives infers that
the person offering the compensation does not trust the offeree to do the right thing, or to
do it well of their own accord, and the offeree’s self-confidence and intrinsic motivation
to succeed are reduced to the extent that the offeree believes that the offeror—a manager
or parent, for example—is better situated to judge the offeree’s abilities. 113

A substantial empirical literature, including field and laboratory experiments,

econometrics, and surveys—has tested the hypotheses of this model of human
motivation, and found substantial evidence that, under some circumstances, adding
money for an activity previously undertaken without price compensation reduces, rather
than increases, the level of activity. 114 The work has covered contexts as diverse as
employees supplying labor 115 or sharing their knowledge with team members, 116
willingness of communities to accept locally undesirable land uses (NIMBY behavior
increasing, rather than decreasing, with the addition of incentives rather than common
weal arguments), 117 or punctually picking up children from daycare centers (parents come

111
See Frey, Not Just For Money, supra note 109, at 13-14; Frey, Inspiring Economics, supra note 109, at
55.
112
See Bruno S. Frey and Reto Jege, Motivation Crowding Theory: A Survey of Empirical Evidence, 15(5)
J. Economic Surveys 589 (2001) (pp. 8-9 of working paper version).
113
Bénabou, R. and J. Tirole (2000). Self-Confidence and Social Interactions. NBER Working Paper
W7585 (March, 2000).
114
See id.
115
T.F. Bewley, A Depressed Labor Market as Explained by Participants, 85 Am Econ. Rev. 250 (1995)
(providing survey data about managers’ beliefs about the effects of incentive contracts).
116
See Margit Osterloh and Bruno S. Frey, Motivation, Knowledge Transfer, and Organizational Form, 11
Organization Science 538 (2000).
117
Bruno S. Frey and Felix Oberholzer-Gee, The Cost of Price Incentives: An Empirical Analysis of
Motivation Crowding-Out, 87 Am Econ. Rev. 746 (1997); H. Kunreuther and D. Easterling, Are Risk-
Benefit Tradeoffs Possible in Siting Hazardous Facilities? 80 Am. Econ. Rev. 252-256 (1990).

39
later, rather than earlier, when a price is imposed on coming late). 118 The results of this
work strongly suggest that some displacement, or crowding out, can be identified, across
various domains, between monetary rewards and non- monetary motivations. This does
not mean that offering monetary incentives does not increase extrinsic rewards. It does,
and where extrinsic rewards dominate, this will increase the activity rewarded as usually
predicted in economics. But the effect on intrinsic motivation, at least sometimes,
operates in the opposite direction. Where intrinsic motivation is an important factor,
because pricing and contracting are difficult to achieve or because the payment is
relatively low, the aggregate effect may be negative. Inducing transfers of tacit
knowledge from employees to the teams the y work with is a good example of the former
type of condition; 119 while low payments for otherwise volunteer-based activities are an
example of the latter. 120

Frey’s psychologically-based extrinsic/intrinsic motivation distinction is helpful,

and the empirical evidence is powerful. The psychological construct does not, however,
seem fully to account for motivation in social sharing frameworks. As Frey himself
implies, recognition by friends is plainly a form of extrinsic motivation, 121 and it is trivial
that the attainment of wealth is not purely functional and extrinsic, but as Veblen
explained long ago, plays a role in providing social recognition, 122 which in turn is likely
quite central to people’s sense of intrinsic satisfaction. In the social capital literature,
social interactions are very often understood in functional, rather than symbolic and
psychological terms—their value is in providing future access to information, resources,
and opportunities for action. 123 This social- functional thesis of why people might behave
sociably and share does not need a psychological explanation, but might still have a
similar relationship with money—where paid cooperative behavior demands less non-
monetary reciprocation than uncompensated cooperation. Such an interpretation would
equally, if not better, explain empirical findings that payments crowd out reciprocating
cooperation. 124 The social capital literature, in any event, seems to assume that what can
be attainable through social position and relations is not substitutable, at least not

118
Uri Gneezy and Aldo Rustichini, A Fine is a Price 29 J. Legal. Stud. 1 (2000) (finding that introducing a
fine for tardy pickup increased, rather than decreased, tardiness by parents).
119
See Osterloh & Frey, supra note 116.
120
See Frey & Jege, supra note 112.
121
See Frey, Not Just for Money, supra note 109, at 14.
122
Thorstein Veblen, The Theory of the Leisure Classe, Chapter 4 (1902) (explaining conspicuous
consumption).
123
See, e.g. Lin, supra, not 76, at 150-51 (Making the claim that “there are two ultimate (or primitive)
rewards for human beings in a social structure: economic standing and social standing,” and elaborating a
thesis where in both cases these represent relational standing, in terms of capacity to mobilize resources,
some that can be mobilized by money, others those that can be mobilized by social relations. Coleman,
supra note 76, similarly is focused on the functional characteristics of social networks, as are other major
versions of social capital literature, such as Mark Granovetter, The Strength of Weak Ties, 78 Am. J.
Sociology, 1360-80 (1973); Mark Granovetter, Getting a Job (1974); Yoram Ben-Porath, The F-
Connection, Families, Friends and Firms and the Organization of Exchange, 6 Population and Development
Rev. 1 (1980).
124
In particular, studies that focus on crowding-out of reciprocity, are supportive of a social causal theory.
See, e.g., Ernst Fehr and Simon Gechter, Do Incentive Contracts Undermine Voluntary Cooperation? IERE
Zurich Working Paper, No. 34, (April 2002) (describing laboratory experimental results for the effects of
incentives on cooperation).

40
perfectly, with what can be bought. That is what makes social relations a form of capital
distinct from financial capital.

For purposes of my analysis here it is not necessary to pin down precisely the
correct and most complete theory of motivation, or the full extent and dimensions of
crowding out. All that is required to outline the framework for analysis is recognition
that there is some form of social-psychological motivation that is neither fungible with
money, nor simply cumulative with it. 125 Transacting within the price system may either
increase or decrease the social-psychological rewards (be they intrinsic or extrinsic,
functional or symbolic). 126

The intuition is simple. Leaving a $50 bill on the table after one has finished a
pleasant dinner at a friend’s house would not increase the host’s social and psychological
gains from the evening. Most likely it would so diminish them such that one would never
again be invited. A bottle of wine or bouquet would, to the contrary, improve the social
gains. And if dinner is not intuitively obvious, think of sex. The point is simple.
Money-oriented motivations are different from socially oriented motivations. Sometimes
they align. Sometimes they collide. Which of the two will be the case is historically and
culturally contingent. The presence of money in sports or entertainment reduced the
social psychological gains from performance in late 19th century Victorian England, at
least for members of the middle and upper classes. This is reflected in the long-standing
insistence on the “amateur” status of the Olympics, or the status of “actors” in that
society. This has changed dramatically over a century later, where athletes’ and popular
entertainers’ social standing is practically measured in the millions of dollars their
performances can command.

The relative relationships of money and social-psychological rewards are

culturally- and context-dependant. Similar actions may have different meanings in
different social or cultural contexts. While I have elsewhere offered more detailed
descriptions, 127 one example could illustrate how these components interact. Consider
three lawyers contemplating whether to write a paper presenting their opinion. One is a
practicing attorney. The second is a judge. The third is an academic. For the first,
money and honor are often, though not always, positively correlated. Being able to

125
One sees this assumption in operation in the non-profit literature. See Dennis Young, Entrepreneurship
and Behavior of nonprofit Organizations: Elements of a Theory, in The Economics of Nonprofit
Institutions (S. Rose-Ackerman, ed.) at 161 (1986) (describing non-profit sector precisely in terms of
motivational profiles of non-profit entrepreneurs); Weisbrod, supra note 3, at 31-33 (describing
motivational profile of nonprofit entrepreneurs, and providing empirical evidence that the non-profit sector
draws individuals with different motivational profiles than for profit sector).
126
Crowding out may not, however, be an important effect in the relationship of government provisioning
to volunteer donation. Susan Rose-Ackerman has shown that the relationship is ambiguous, and that
government provisioning may not crowd out private donation, but merely change is focus and shape.
Susan Rose-Ackerman, Do Government Grants Reduce Private Donations, in The Economics of Nonprofit
Institutions supra note 114, at 313. See also Burton A. Abrams and Mark D. Schmitz, The Crowding Out
Effect of Governmental Transfers on Private Charitable Contributions, in Economics of Nonprofit
Institutions, id, at 304, 311 (finding somewhat ambiguously a partial displacement of private contributions
by public funding.)
127
Benkler, Coase’s Penguin, or Linux and the Nature of the Firm, 112 Yale L. J. 369 (2002).

41
command a very high hourly fee for writing the requested paper is one mode of
expressing one’s standing in the profession. And yet, there are modes of acquiring
esteem—like writing the paper as a report for a bar committee—that not only are not
improved by the presence of money, but are in fact undermined by it. This latter effect is
sharpest for the judge. If a judge is approached with an offer of money for writing an
opinion, not only is this not a mark of honor, it is a subversion of the social role and
would render corrupt the writing of the opinion. The intrinsic “rewards” for the judge
from writing the opinion when matched by a payment for the product would be guilt and
shame, and the offer therefore an expression of disrespect. Finally, if the same paper is
requested of the academic, the presence of mo ney is located somewhere in between the
judge and the practitioner. To a high degree, like the judge, the academic who writes for
money is rendered suspect in her community of scholarship. A paper clearly funded by a
party, whose results support the party’s regulatory or litigation position is practically
worthless as an academic work. But in a mirror image of the practitioner, there are some
forms of money that count towards adding to an academic’s social psychological
rewards, peer-reviewed grants and prizes most prominent among them. Pursuing those
reinforces, rather than undermines, the academic’s social psychological rewards.

A comparison of market and social systems for organizing production utilizing

shareable goods in terms of motivation, then, will see money (or any other expression of
market-exchange value) and social-psychological rewards as alternative sources of
motivation, where the pursuit of one sometimes complements, but sometimes
undermines, the value of the action as measur ed in terms of the other. What the
relationship of the two will be is culturally and historically contingent. Capturing the
potential for human action that could be motivated by the exchange of love, status and
esteem, 128 a personal sense of worth in relations to others, is the strong suit of social
production (and sometimes to a greater, and sometimes to a lesser extent, depending on
time and context, the state—as in “Uncle Sam Wants You!”), which rewards action either
solely in these forms, or if it adds money, organizes its flow in such ways that at least
does not conflict with and undermine the quantum of self-confidence, love, esteem,
social- networking value etc., obtained by the agent from acting.

c. Motivation and Information

To compare the attractiveness of market and social exchange systems, then, we

should compare (a) transaction costs of using one or the other system of exchange, and
(b) the likely reward flows to individuals from participating in one or the other of the two
systems. The two considerations are independent of each other. If one chooses to be
concerned with welfare optimization, then what needs to be optimized is the combined
effect of both. Comparing each is a context specific, empirical exercise that depends on
the characteristics of the good, the use, and the extant social and market practices and
institutions in the society for which the two are compared. The answers may be different
for apples than for oranges, 129 for economists than for Melanesian Islanders. 130 These

128
See Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 Mich. L. Rev. 338
(1998).
129
The latter have lower transaction costs for sharing, because of their morphology.

42
questions provide rich grounds for empirical observations as to sharing and secondary
market practices, but do not give us an approximate general intuition about the direction
that exchange of excess capacity generated by shareable goods will take, except in one
instance of central importance.

What the analysis does suggest is that where shareable goods result in excess
capacity being widely distributed in small dollops, social sharing will outperform
secondary markets. This is so because of both transaction costs and motivation. The
difference between the transaction costs of a secondary market and those of a sharing
system increase linearly with the number of transactions necessary to collect a usable
amount of functionality. The smaller the amount of excess capacity held by each unit
owner relative to the total amount required for the functionality, the higher the number of
transactions necessary to achieve the functionality, and the larger the gap in transaction
costs between market-based clearance and social sharing. Furthermore, the smaller the
amount of excess capacity each unit owner owns, the smaller the payment that each
owner can be paid. It is precisely where payments are low that their introduction is likely
to have a small positive effect on contributions, and therefore to leave the crowding out
effect to dominate the overall level of participation. Fewer owners will be willing to sell
their excess capacity cheaply than to give it away for free, and the transaction costs of
selling will be higher than those of sharing.

At a broad policy level, one could be concerned with one of two goals. The first
goal is relevant where we are able to say with some degree of confidence that a particular
problem is particularly amenable to solution within one or another of the systems of
production. It would be focused on providing stronger institutional guides towards
funneling the behavior into a market, or a social production system, respectively. The
second, more widely applicable goal until we have learned more about the contours of
social production and exchange, is to study changes in law and policy so as to avoid
tipping the production system towards one or another of these competing systems—in
particular in favor of the one with which we are more familiar, the market—before we
have good reason to think that the preferred system is the better one.

130
Melanesian Islanders have appeared as all but the personification of gift economies ever since
Malinowski’s Argonauts of the Western Pacific, supra note 5. Economists, by contrast, have been the
subject of claims that they systematically behave less pro-socially than students of other disciplines. See
Marwell Gerald and Ruth E. Ames (1981). Economists Free Ride, Does Anyone Else? Experiments on the
Provision of Public Goods IV. Journal of Public Economics 15. 295-310.; Carter, John R. and Michael D.
Irons (1991), Are Economists Different, and If So, Why? Journal of Economic Perspectives 5, 171-177;
Frey, Bruno S., Werner W. Pommerehne and Beat Gygi (1993). Economics Indoctrination or Selection?
Some Empirical Results, Journal of Economic Education 24, 271-281; Frank, Björn und Günther G.
Schulze (2000). Does Economics Make Citizens Corrupt? Journal of Economic Behavior and Organization
43 (1). 101-113; Frank, Robert H., Thomas Gilovich and Dennis T. Regan (1993). Does Studying
Economics Inhibit Cooperation? Journal of Economic Perspectives 7, 159-171; Frank, Robert H., Thomas
Gilovich and Dennis T. Regan (1996). Do Economists Make Bad Citizens? Journal of Economic
Perspectives 10, 187-192. This observation may, however reflect a selection bias—that is, it is more likely
that selfish people self-select into the discipline than that the exposure to the discipline causes selfishness.
See Frey & Meier, Pro -Social Behavior, supra, at 14-16 & Table 6.

43
 The basic point is that for any given resource that exists in an institutional-cultural
space at a moment in history, there will be different costs to move from no sharing to
either a secondary market system or a social exchange system. These costs partly depend
on the technological characteristics of the good. Some things are very small, aggregation
requires many transactions with many individuals, and the higher transaction costs of
markets will likely rule out efficiency-seeking policy through secondary markets. Partly,
however, the costs depend on social practices and cultural values held by the people in
the relevant society. For example, if market institutions are prevalent, and people are
culturally attuned to making every penny they can, then moving to a secondary market
will require (a) lower fixed transaction costs for institution building and repurposing, (b)
fewer attitudinal and social practice adjustments, and (c) will hit the right motivational
pitch to which people in this society are attuned. And vice versa—a society where
sharing or otherwise non-market cooperation among non-kin is widespread, where social
institutions, attitudes etc., are more readily available to support a sharing system for
impersonal interactions, the transition costs from perfect exclusion to social sharing will
be lower than the transition costs from the same perfect exclusion, keeping technological
characteristics constant, to secondary markets. When we are faced with policy proposals
for institutional changes that affect practices involved in production and exchange, we
should consider their effects not only on market production, but also on social
production. To the extent policy is properly concerned with increasing production of a
given desideratum, it should be driven by an analysis of how the policy change will affect
total production, in both systems—or all three, including state-based production—not
only on how it will affect one of the systems.

V. Sharing as a modality of production

Up to this point the article has been focused on sharing of material goods that
appear to be “traditional” economic goods—rival and private—but nonetheless are
amenable to sharing. We can now integrate the se observations with work done in a
number or related areas of study, as well as with my own earlier work on peer-production
online, to consider sharing at a broader level of abstraction as an alternative modality of
economic production. In this part I will attempt to outline what “sharing” as a modality
of economic production might mean, how we could think of locating its role in the
economy. The last part will be devoted to outlining how recognizing sharing as an
important form of production can affect some contemporary policy debates.

The claim is that sharing is a pervasive modality of economic production. By

“economic production” I mean the provisioning of goods and services that people value.
By pervasive, I mean that it is an approach to organizing economic production that we
use as an integral part of many daily contexts—whether we think of them or not.

Under certain technological circumstances, practically- feasible opportunities for

action are distributed in such a pattern that they are amenable to execution by a class of
approaches to organizing production that rely on sharing. These are typified by (a)
radical decentralization of the capacity to contribute to effective action and the authority
to decide on the contribution, and (b) reliance on social information flows, organizational

44
approaches, and motivation structures, rather than on prices or commands, to motivate
and direct productive contributions.

Most practices of production—social or market-based—are already embedded in

a given technological context. They present no visible “problem” to solve or policy
choice to make. We do not need to be focused consciously on improving the conditions
under which friends lend a hand to each other to move boxes, make dinner, or take kids
to school, and feel no need to reconsider the appropriateness of market-based-firm
production of automobiles. However, in moments where a field of action is undergoing a
technological transition that changes the opportunities for sharing as a modality of
production, understanding that sharing is a modality of production becomes more
important, as does understanding how it functions as such. This is so, as we are seeing
today, when prior technologies have already set up market- or state-based production
systems that have the law and policy- making systems already designed to fit their
requirements. While the prior arrangement may have been the most efficient, or even
may have been absolutely necessary for the incumbent production system, its extension
under new technological conditions may undermine, rather than improve, the capacity of
a society to produce and provision the goods, resources, or capacities that are the object
of policy analysis. This is, today, true of wireless communications regulation, or
“spectrum management” as it is usually called; of the regulation of information,
knowledge, and cultural production, or “intellectual property,” as it is usually now called,
and it may be true of policies for computation and wired communications networks, as
distributed computing and the emerging peer-to-peer architectures are suggesting. I will
consider these policy areas in Part VI.

Sharing is common and underappreciated as a modality of production

There is a curious congruence between the anthropologists of the gift and

mainstream economists today. Both treat the gift literature as being about the periphery,
about societies starkly different from modern capitalist societies. As Godelier puts it,
“What a contrast between these types of society, these social and mental universes, and
today’s capitalist society where the majority of social relations are impersonal (involving
the individual as citizen and the state, for instance), and where the exchange of things and
services is conducted for the most part in an anonymous marketplace, leaving little room
for an ‘economy and moral code based on gift-giving.”131 And yet, sharing is everywhere
around us in the advanced economies. The past two decades or so have seen an
increasing focus, in a number of interrelated literatures, on production practices that rely
heavily on social, rather than price-based or governmental policies. These include,
initially, the literature on social norms 132 and social capital, or trust. 133 Both lines of

131
Godelier, supra note 5, at 106.
132
In the legal literature Robert Ellickson, Order Without Law: How Neighbors Settle Disputes (1991) is
the locus classicus for showing how social norms can substitute for law. For a bibliography of the social
norms literature outside of law see Richard H. McAdams, The Origin, Development, and Regulation of
Norms, 96 Mich. L. Rev. 338, footnotes 1 and 2. Early contributions were Edna Ullman-Margalit, The
Emergence of Norms (1977); James Coleman, Norms as Social Capital, in Economic Imperialism, (Gerard
Radnitsky and Peter Bernholz, eds. 1987) 133-55; Sally E. Merry, Rethinking Gossip and Scandal, in
Toward a Theory of Social Control, Vol 1., Fundamentals, (Donald Black, ed. 1984) 271-302.

45
literature, however, are statements of the institutional role of social mechanisms for
enabling market exchange and production. 134 More direct observations of social
production and exchange systems are provided by the literature on social provisioning of
public goods—like the literature on social norm enforcement as a dimension of policing
criminality, 135 and the literature on common property regimes. 136 The former are limited
by their focus on public goods provisioning. The latter usually limited by their focus on
discretely identifiable types of resources—common pool resources—that must be
managed as among a group of claimants while retaining a proprietary outer boundary
towards non-members. 137 The broadest set of claims similar to those I make here comes
from Bowles and Gintis, who describe “community governance” as a complementary
system for solving problems, some of which take the form of production problems, some
that take the form of public goods provisioning. 138 Their claim is that communities can
have advantages in incentives to cooperate because of the prevalence of repeat
interactions, in the acquisition of information about past, present, and likely future
behavior of other participants, and by providing organizational space for the utilization of
the empirically tested fact that many people have a taste for enforcing against anti-social
behavior. Along these dimensions, they claim that community governance systems exist
alongside, and complement, markets and states, where their relative advantages make
them better than market and states at solving the governance problems faced by agents
that make up the community. 139 My own aim is to generalize this claim, such that we
understand “community governance” aimed at production as a special case of social

133
Bowles and Gintis trace the argument that social trust compensates for market failures in enabling
cooperation to Kenneth Arrow, Political and economic evaluation of social effects and externalities, in
Frontiers of Quantitative Economics, 22 (1971) “In the absence of trust… opportunities for mutually
beneficial co-operation would have to be foregone… norms of social behavior, including ethical and moral
codes (may be) … reactions of society to compensate for market failures.”
134
The ranchers of Shasta County in Ellickson’s classic study were producing norms socially. They were
not producing beef in response to social motivations or signals, in the same way that, for example, the
participants in SETI@Home produce computation socially, or the programmers who co-author free
software projects do. They were provisioning governance through social mechanisms. The governance
issues they tackled were the conflicts that arose from their market-based behavior. The problem that has
been the focus of economic claims about social capital was that trust relations provide an important social
context for markets, in lowering transaction costs and improving production in market systems. But they
are in the first instance understood as means of smoothing the operations of a market production and
exchange system ( and these are to be distinguished from the political claims about the relationship
between social capital and democracy, which were central to Putnam’s treatment, see Robert Putnam,
Bowling Alone (2000)..
135
See, e.g., Robert C. Ellickson, Controlling Chronic Misconduct in City Spaces: Of Panhandlers, Skid
Rows, and Public-Space Zoning, 105 Yale L.J. 1165, 1194-1202 (1996); Dan M. Kahan, Between
Economics and Sociology: The New Path of Deterrence, 95 Mich. L. Rev. 2477 (1997).
136
See supra note 70; see also Carol M. Rose, The Several Futures of Property: Of Cyberspace and Folk
Tales, Emission Trades and Ecosystems, 83 Minn. L. Rev. 129 (1998). Carol M. Rose, Left Brain, Right
Brain and History in the New Law and Economics of Property, 79 Org. L. Rev. 479 (2000).
137
See Ostrom, supra note 70, at 91-92 (listing clearly defined boundaries as crucial to success). Clearly,
however, the provisioning of a dam in Ostrom’s description of the Phillipine zanjeiras, id., at 82-88,
organized around claims to the resulting water flow, none of which is price-based or legal fiat-based,
describes a richly detailed social production system. Ostrom, Governing the Commons.
138
Samu el Bowles and Herbert Gintis, Social Capital and Community Governance, 112 The Economic
Journal F419-F436 (2002).
139
Id.

46
sharing, one that gains robustness because it involves tightly connected social groups.
But social sharing is a broader phenomenon that includes cooperative enterprises that can
be pursued by weakly connected participants or even by total strangers, and yet function
as a sustainable and substantial modality of economic production. Indeed, in the context
of the digitally networked environment, it is this type of sharing and cooperative
production among strangers and weakly connected participants that holds the greatest
economic promise.

The most visible set of practices that typify this broader claim are what I have
called commons-based peer production—large-scale cooperative efforts where the thing
shared among the participants is their creative effort, or labor. 140 Most prominent among
these is free software. An approach to software development that is sharing-based, free
software or open source software depends on many individuals contributing to a common
project on a variety of motivations, and then sharing their respective contributions
without any one entity or person asserting a right of exclusion to either the contributed
components or the resulting whole. In order to avoid the joint product being appropriated
by any single party, participants usually retain copyrights in their contribution, but license
them to anyone—participant or stranger—on a model that joins a universal license to use
the materials with constraints that make its re-appropriation by either the contributor or a
third party difficult, if not impossible. While there have been many arguments about how
widely the provisions that prevent appropriation should be used, the practical adoption
patterns have been dominated by forms of licensing that prevent re-appropriation of the
contributions or the joint product. 141 Free software has played an important role in the
recognition of peer production, because software is a functional good with measurable
qualities. It can be more or less authoritatively tested, quantitatively, against its market-
based competitors. And in many instances free software has prevailed. Over 60% of
webserver software, in particular for critical e-commerce sites, runs on the Apache
webserver, free software. 142 More than half of all back office email functions are run by
one free software program or another. 143 These are mission critical applications for the

140
See Benkler, Coase’s Penguin, supra, note 127; James Boyle, The Second Enclosure Movement and the
Construction of the Public Domain, 66 L. & Contemp. Probs 33, 44-49 (2003).
141
Josh Lerner & Jean Tirole, The Scope of Open Source Licensing, Harvard NOM Working Paper No. 02-
42 (2002) (identifying roughly 85% of the licenses in active projects on SourceForge, the biggest site for
clearance of free software development projects, as having “restrictive” or “very restrictive” licenses —that
is, largely speaking, to be copylefted.)
142
Netcraft Web Survey, http://news.netcraft.com/archives/web_server_survey.html .
143
Email server surveys are less common and regularized than webserver surveys. For much of the 1990s,
the dominant email server was Sendmail, See Glynn Moody, Rebel Code (2001), which was distributed
mostly under a BSD license, and is currently available under that license to all but those who intend to be
commercial redistributors of the software when unaccompanied by its source code. See
ftp://ftp.sendmail.org/pub/sendmail/LICENSE. In the past few years, Sendmail has lost market share, partly
to other free software projects, and partly to a new proprietary email server, iMail, which seems to have
risen in usage to around 19%. Compare Credentia, Email Server Results for April 2003,
http://www.credentia.cc/surveys/smtp/latest/, (8.4%) to Falko Timme, Mail Server Survey March, 2004,
http://www.falkotimme.com/projects/survey_smtp_032004.php (18.75%). At the same time, however, a
free software project supported by IBM, Postfix, also rose from 2.53% to 20.55%. Compare Credentica, id.
to Falko, id. Postfix is a particularly interesting case, because it was developed as an alternative to
sendmail, but also self-consciously as in competition with qmail, see
http://www.postfix.org/motivation.html. qmail, in turn, was developed as an alternative to sendmail, and for

47
organizations that adopt them, applications that most organizations would not jeopardize
to save a few thousands of dollars for licensing fees. Google, Amazon, and CNN.com,
for example, are not running their webservers on the GNU/Linux operating system144 in
order to save licensing fees at the risk of higher failures for their core business. The
measurable efficacy of free software has made dismissing the phenomenon harder. The
centrality of software to production in the information and communications environment
has made its success impossible to ignore and important to preserve and emulate.

While free software is the most visible instance of peer production, with areas of
measurably superior performance, it is not the only locus of peer production. I have
described these other phenomena in detail elsewhere, but will encapsulate one example
here. 145 Slashdot is a technology news site co-authored by a quarter of a million users. It
is far from perfect, but it has become something of a must-read for anyone seriously
interested in information and communications technology, be they professional, amateur,
or commercial journalist. The site allows its hundreds of thousands of users to scour the
Internet for news, to identify what is relevant and what is not, and to post links with
commentary for others to read. Users then engage in a system of commentary and
elaboration, which itself is peer reviewed by other users through a system of
technologically- mediated recording of quality judgments. The peer reviewers are
themselves reviewed by other users periodically, and may be removed if a sufficient
number of other users find their judgments lacking. The whole system of posting of
stories, commentary on stories posted, and recursive peer review of the commentary and
of the quality of the peer reviewers runs on a free software platform. Together these
provide an example of an identifiable information good, co-produced by many users, in a
manner that is efficacious, and yet based on social motivations and structures of
participation, not on prices or hierarchical commands. The users contribute and share in
each other’s time and judgments as to what is relevant to this community of interest, and
about how to evaluate the events of the day in its fields of coverage. In this case, the
“shareable good” involved is the time, education, and effort of the us ers who participate,
it is combined with a public good—existing information—to form what is itself a public
good—a topical news and commentary source. Other similar endeavors provision an
encyclopedia co-authored by a few thousand volunteers, 146 a comprehensive human-
edited directory of websites, on the model of the Yahoo directory, but provisioned by
over 40,000 volunteers, 147 and many other examples. 148

a while was believed to be developed by Daniel Bernstein for release as free software. Bernstein, however,
has chosen to release the software at no charge, but under terms that give him strong authorial control, see
http://cr.yp.to/qmail/dist.html . Qmail’s use declined dramatically between the two surveys cited above,
suggesting a preference in the community of adopters for free software over software that is at no charge,
but nonetheless controlled.
144
The operating system used by a website can be obtained by querying the site. A simple tool is available
at http://www.netcraft.com. The three sites are selected purely for anecdotal intuitive reasons, with no
special claim to being representative of broader usage statistics.
145
See Coases Penguin, supra note 127, at 381-400.
146
www.Wikipedia.org
147
The open directory project, www.dmoz.org
148
See Benkler, Coase’s Penguin, supra, note 127.

48
 Creative labor in the context of peer production can be harnessed when a project
is broken up into discrete modules, whose granularity is varied and sufficiently fine-
grained to allow individuals with diverse motivations to engage in the effort at levels
appropriate for their motivations, but still provide stable contributions to the whole. 149 In
this, the modularity and granularity of the individual effort and time required by a project
allow individuals to segment their own day/week/month such that they can find “excess
capacity” that they can contribute to the common effort. The relative efficiency of peer
production to markets, as with the case of social sharing of shareable goods, is analyzed
in terms similar to those offered here—concerning information, transaction costs, and
motivations—but with changes appropriate for the case of human creative labor, which is
different in many ways from the material goods that were the subject of the first four
parts of this paper.

These lines of literature point to an emerging understanding of social production

and exchange. This phenomenon is not limited to public goods, to exotic out of the way
places like surviving medieval Spanish irrigation regions 150 or the shores of Maine’s
lobster fishing grounds, 151 or even to the ubiquitous phenomenon of the ho usehold. 152
Nor, as SETI@Home and the body-snatchers and slugs of Northern Virginia suggest, is it
necessarily limited to stable communities of individuals who interact often and know
each other, or expect to continue to interact personally. Social production of goods and
services, both public and private, is ubiquitous, though unnoticed. It sometimes
substitutes for, and sometimes complements, market and state production everywhere. It
is, to be fanciful, the dark matter of our economic production universe.

Consider the way in which the following sentences are intuitively familiar, yet as
a practical matter describe the provisioning of goods or services that have well defined
NAICS categories, 153 whose provisioning through the markets is accounted for in the
economic census, but that are commonly provisioned in a form consistent with the
definition of sharing—on a radically distributed model, without price or command.

NAICS 624410624410 [Babysitting services, child day care]

“John, could you pick up Bobby today when you take Lauren to soccer? I
have a conference call I have to make.”
“Are you doing homework with Zoe today, or shall I?”
NAICS 484210 [Trucking used household, office, or institutional furniture and
equipment]
“Jane, could you lend a hand moving this table to the dining room?”
“Here, let me hold the elevator door for you, this looks heavy”
NAICS 484122 [Trucking, general freight, long-distance, less-than-truckload]

149
Id., at 400-43.
150
Ostrom, supra note 70.
151
Acheson, supra note 70.
152
See The Household Economy, Reconsidering the Domestic Mode of Production (Richard R. Wilk, ed.
1989); At the Interface: The Household and Beyond (David B. Small and Nicola Tannenbaum, eds. 1999);
Ellickson’s, Households, supra note 74.
153
NAICS stands for North American Industry Classification System, the new classification system
developed by the U.S. Census Bureau to describe economic activity.

49
 “Jack, do you mind if I load my box of books in your trunk so you can
drop it off at my brother’s on your way to Boston?”
NAICS 514110 [Traffic reporting services]
“Oh, don’t take I-95, it’s got horrible construction traffic to exit 39”
NAICS [Newspaper columnists, independent (freelance) ]
“I don’t know about Clark, he doesn’t move me, I think he should be more
aggressive in criticizing Bush on Iraq.”
NAICS 621610 [Home healthcare services]
“Can you please get me my medicine? I’m too wiped to get up.”
“Would you like a cup of tea?”
NAICS 561591 [Tourist information bureaus]
“Excuse me, how do I get to Carnegie Hall?”
NAICS 561321 [Temporary help services]
“I’ve got a real crunch on the farm, can you come over on Saturday and
lend a hand?”
“This is crazy, I’ve got to get this document out tonight, could you lend
me a hand with proofing and pulling it all together tonight?”
NAICS 71 [Arts, entertainment, and recreation]
“Did you hear the one about the Buddhist monk, the Rabbi, and the
Catholic priest?...”
“Roger, bring out your guitar….”
“Anybody up for a game of…?

The litany of examples generalizes through a combination of four dimensions that

separate them from the current foci of the literature. First, they relate to production of
goods and services, not only of norms or rules. Social relations provide the very
motivations for and information relating to production and exchange, not only the
institutional framework for organizing action that itself is motivated, informed and
organized by markets or managerial commands. Second, they relate to all kinds of
goods, not only public goods. In particular, the paradigm cases of free software
development and distributed computing or carpooling involve labor and shareable
goods—each plainly utilizing private goods as inputs, and in the case of carpooling and
distributed computing, producing private goods as outputs. Third, at least some of them
relate not only to relations of production within well defined communities of individuals
who have repeated interactions, but extend to cover baseline standards of human decency
that enable strangers to ask one another for the time or for directions, that enable drivers
to cede the road to each other, and that enable strangers to collaborate on software
projects, on co-authoring an online encyclopedia, or on running simulations of how
proteins fold. Fourth, they may either complement or substitute for market and state
production systems, depending on the social construction of mixed provisioning. What
weight social and sharing-based production has in the economy is hard to measure. Our
intuitions about capillary systems would suggest that the total volume of boxes or books
moved or lifted, instructions given, news relayed, meals prepared, etc., by family, friends,
neighbors, and minimally decent strangers would be very high relative to the amount of
substitutable activity carried on through market exchanges or state provisioning.
Measuring the actual relative weight would be difficult.

50
 Sharing is technology-sensitive, because individual efficacy
is subject to capital constraints

A threshold requirement for social sharing to be a modality of economic

production, as opposed to one purely of social reproduction, is that sharing-based action
be effective. Efficacy of individual action depends on the capital requirements for action
to become materially effective, which, in turn, depend on technology. When effective
action requires very low physical capital requirements, so that every individual has, by
natural capacity, “the physical capital” necessary for action, social production or sharing
can be (though may not in practice become) ubiquitous. Voice cords to participate in a
sing-along, muscles to lift a box, etc., are obvious examples. When the capital
requirements are non-trivial, but the capital good is widely distributed and available,
sharing can similarly be ubiquitous and effective. This is true whether the shared
resource or good is the capacity of the capital good itself—as in the case of shareable
goods—or some widely distributed human capacity capable of being made effective
through the use of the widely distributed capital goods—as in the case of human
creativity, judgment, experience and labor that is shared in online peer production
processes, for which participants rely on the widespread availability of connected
computers to participate. When some larger-scale capital requirement is a threshold
requirement of effective action, we should not expect to see widespread reliance on
decentralized sharing as a standard modality of production. Industrial production of
automobiles, steel, plastic toys, etc., is not the sort of thing that is likely to be produced
on a social sharing basis, because of the capital constraints. This is not to say that even
for large-scale capital projects, like irrigation systems and dams, social production
systems cannot step into the breach. We have those core examples in the common
property regime literature, and we have worker-owned firms as examples of mixed
systems. But those systems tend to replicate the characteristics of state or market
production—be they rule-based production that uses quotas, scrip systems, formal
policing by “professional” officers, court-like systems for adjudicating disputes, or mid-
level management within worker owned firms. 154 By comparison, the lobster gangs of
Maine, 155 or fishing groups in Japan, 156 where capital requirements are much lower, tend
to be more social-relations based systems, with less formalized or crisp measurement of
contributions to, and calls on, the production system.

It is important to emphasize that technology imposes threshold constraints on

effective sharing, but cannot unilaterally determine the level of sharing practiced in a
society. At any given level of technically feasible sharing, societies may differ in their
cultural practices and tastes. These differences can be expressed in the approach I
offered in Part IV as (a) the level of background investments in any one of the alternative
154
See Ostrom, 69-82 (describing the governance mechanisms of the complex irrigation systems);
Hansmann, Ownership of Enterprise (describing worker-owned firms as simply a species of firm
ownership).
155
Acheson, supra, note 70.
156
See Jean-Phillipe Platteau and Erika Seki, Community arrangements to overcome market failure:
pooling groups in Japanese fisheries, in Communities and Markets in Economic Development (M. Hayami
and Y Hayami, eds.) (2001) at 344-402.

51
transactional frameworks and (b) the shape of the demand for social-psychological
rewards. Differences in these elements would result in different levels of sharing in
societies that share a technological state, but differ in their culture of sharing. A change
in technology, however, will increase the supply of opportunities for sharing, and should,
other things being equal, increase the prevalence of sharing practices. Of course, if
culture is endogenous, then the taste for sharing will also change with the increase in
feasible opportunities for sharing. For example, one possible interpretation of the survey
data about preferences of carpoolers 157 is that they are an indication of coherence-seeking
attitudinal changes towards the benefits of sociability, time saving etc. that carpoolers
adopt to make their practice cohere with their beliefs, rather than of attitudina l priors that
individuals hold as an antecedent to participating in the practice. 158 If this were so, and
we believed that by practicing sharing people come to value it more, or come to learn to
trust other participants, then an increase in opportunities to share will dynamically
increase the taste for sharing as well, which will increase sharing practiced, forming a
virtuous cycle, at least from the perspective of anyone who holds that a society that
practices trust and sharing is normatively more attractive than a society where agents
treat each other at arms length. 159

To say that sharing is technology-dependent is not to deny that it is a ubiquitous

human phenomenon. Sharing is so deeply engrained in so many of our cultures, that it
would be difficult to argue that with the “right” (or perhaps “wrong”) technological
contingencies, it would simply disappear. My claim, however, is much narrower. It is
that the relative economic role of sharing changes with technology. There are
technological conditions that require more or less capital, in larger or smaller packets, for
effective provisioning of goods, services, and resources valued functionally. As these
conditions change, the relative scope for social sharing practices to play a role in
production changes. When goods, services, and resources are widely dispersed, they
allow their owners to choose to engage with each other through social sharing, instead of
through markets or a formal state-based relationship, because individuals have available
to them the resources necessary to engage in such behavior without recourse to capital
markets or the taxation power of the state. If technological changes make the resource
necessary for effective action rare or expensive, individuals may wish to interact in social
relations, but they can now only do so ineffectively, or in different fields of endeavor that
do not similarly require the high capitalization. Large packet, expensive physical capital,
draws the behavior into one or the other of the two modalities of production that can
concentrate financial capital. Nothing, however, prevents change from happening in the
opposite direction. Goods, services, and resources that, in the industrial stage of the
information economy required large scale capital investment to provision, for example,
now are being subject to a changing technological environment that can make sharing a
better way of achieving the same results than can states, markets, or the ir hybrid,
regulated industries.

157
See supra, notes 51-52 and accompanying text.
158
Se Simon, supra, note 53.
159
See Helen Nissenbaum and Yochai Benkler, Commons Based Peer Production and Virtue, (draft
manuscript)

52
 Music in the 19th century was a relational good. 160 It was something people did in
the physical presence of each other: in the folk way through hearing, repeating, and
improvising; in the middle-class way of buying sheet music and playing for guests or
attending public performances; or in the upper class way of hiring musicians. Market-
based production depended on performance through presence. It provided opportunities
for artists to live and perform locally. With the introduction of the phonograph, a
particular relationship to played music was made possible, one that was more passive, in
reliance on the high capital requirements of recording, copying, and distributing
instantiations of recorded music. What developed was a concentrated industry, based on
massive investments in preference formation, which crowded out some, but not all, of the
sharing practices, and many of the presence-performance based markets, though not all of
them (jazz clubs, piano bars, wedding bands, etc.). As computers became more music-
capable and digital networks became a ubiquitously available distribution network, we
saw the emergence of the present conflict over the regulation of cultural production—the
law of copyright—between the twentieth-century, industrial model recording industry
and the emerging system of amateur distribution systems coupled, at least according to
supporters, to a re-emergence of decentralized, relation-based markets for professional
performance artists.

Radically decentralized, relatively impersonal sharing-based and peer production

has economically attractive characteristics as a mode of organizing production

The kind of social interaction typified by peer production like free software
development, or by distributed computing, has remarkably “market like” characteristics
that make it particularly attractive as a social modality of production from the perspective
of economic efficiency. The decentralization of these processes underlies the capacity of
agents to retain a great degree of individual autonomy within the social interaction This
autonomy—to choose to participate, to select opportunities for action, and to act when
the participant wishes and in the fashion that she chooses—is central to the informational
advantage of peer production efforts over firms. Individual agents can act—by
contributing labor or a unit of excess capacity—without need for formalization of their
role, or contribution, either for contracting or for managerial assignment. The
modularity—of the incremental material contributions in shareable goods or of the work
tasks in peer production—keeps individual actions discrete and fairly fine-grained. This
again allows individuals to make decisions at the margin, for each contribution or cluster
of contributions, without undermining the whole, without incurring high social costs.
These characteristics make the availability of resources—labor or material—relatively
fluid. The weakness of the social relations, usually thought harmful to the sustainability
of cooperation in the absence of property rights or managerial oversight, improves the
fluidity of deployment of goods and actions, and improves the degree of agent autonomy
in the relationship.

This does not mean that individuals do not get emotionally and socially engaged
in peer production projects. They do. This does not mean that participants do not derive

160
Eben Moglen, The dotCommunist Manifesto: How Culture Became Property and What We're Going to
Do About It, Lecture available http://www.ibiblio.org/moglen/

53
a sense of meaning and connectedness to others from participation. They do. It does,
however, mean that the particular shape of this form of social production is relatively
fluid, leaving tremendous room for autonomous individual action, in concert with others
but not subject to it. The normative implications of these characteristics of peer
production and large-scale social sharing behaviors are ambiguous. To a communitarian,
the relative fluidity, the capacity to be in many projects at once, to ratchet one’s
participation up or down on an ad hoc basis, and to cabin the cooperative enterprise in
one small or large compartment of one’s life would render this mode relatively
unattractive. To liberals, libertarians, and post- modernists, various characteristics of this
modality of production should be very congenial—autonomy respecting, and allowing for
the creation of varied and diverse social relations of production, relatively free of the
structuring effects of property rights and the distribution of wealth. Irrespective of one’s
position on the normative attractiveness of peer production compared to, Amish barn
raisings, functionally it allows larger scale participation, by many more people, who can
shift their efforts and contributions dynamically as need and interest arise and change. It
is, in other words, likely to be more economically effective and efficient on larger scales.

The claim, then, is that phenomena I describe here and elsewhere—sharing of

material shareable goods and peer production of software, information, and cultural
goods more generally—resemble an ideal market in their social characteristics, but with
social cues and motivations replacing prices to generate information and motivate action.
They rely on relatively impersonal cooperation, generally focused on a particular
functional project, and are based on quite radically decentralized action. Their
impersonality is what allows them to scale to very large groups that could nonetheless
maintain effective action, because intimacy, and even strong familiarity, is highly limited
by each individual’s time, memory, and emotional capacities. Their relatively project-
specific pattern is what allows for moderately impersonal exchange to suffice. Increasing
the relational scope, which would require greater dedication from each individual, would
make participants more vulnerable to each other and require greater stability and control
over inputs and outputs. These characteristics make them attractive as a modality of
production, because they allow greater flexibility and liquidity in the deployment of
resources—whether human or material—through these systems, more so than systems
that depend on more centralized organizational infrastructure or that claim broader scope
over the participation of participants.

Part VI. Some Areas of Current Policy Implications

What are the policy implications of recognizing sharing as a sustainable and

potentially efficient modality of economic production? Where is there a policy battle
between market-based, hierarchical organizations and social production through sharing
that is being fought? I will note here three areas with substantial implications for how
our society produces, records, and communicates information, knowledge, and culture.

54
 A. Wireless communications regulation

Perhaps the most counterintuitive policy shift, yet the one most likely to see a
fundamental change in our approach to provisioning a basic resource, is in the area of
wireless communications. Early in the first decade and a half of radio, radios were
relatively specialized, but not sophisticated. Wireless communications capacity, such as
existed, was therefore relatively decentralized. Marconi operated large shore to ship
stations on a monopoly service model, alongside much small-scale experimentation of the
type that would come to be known as amateur radio. From the middle of World War I
and through the mid-twenties, improvements in the capacity of expensive transmitters
and a series of strategic moves by the owners of the core patents in radio transmission—
GE, RCA, AT&T, and Westinghouse—led to the emergence, by 1926, of the industrial
model of radio communications that typified the 20th century. Radio came to be
dominated by a small number of professional, commercial networks, based on high-
capital cost transmitters, supported by a regulatory framework tailored to making the
primary model of radio utilization for most Americans passive reception, with simple
receivers, of commercial programming delivered through high-powered transmitters.
This development crowded out the more widely distributed, local infrastructure of no n-
market broadcasting that blossomed before the mid-1920s in the United States. 161

The industrial model, that assumes a large-scale capital investment in the core of
the network and small scale investments at the edges, optimized for receiving what is
generated at the core, imprinted on wireless communications systems both at the level of
design and at the level of regulation. When mobile telephony came along, it replicated
the same model, using relatively cheap handsets oriented towards an infrastructure-
centric deployment of towers. The economic analysis of wireless communications
adopted the same model, and spent four decades criticizing the incumbent approach only

161
A condensed version of this history can be found in Yochai Benkler, Overcoming Agoraphobia:
Building the Commons in the Digitally Networked Environment, 11 Harv J. L. & Tech. 287, 301-14
(1998). The most comprehensive history on which this story is based is 1 Erik Barnouw, A History of
Broadcasting in The United States: A Tower In Babel (1966). There are, needless to say, other
historiographies of this period, some covered in Overcoming Agoraphobia, supra, 298-301. The most
distinctly different story, focusing more on the politics of ground roots activism versus corporate corruption
of the process and locating the origins of the systems in the mid -30s instead of the mid-20s is Robert W.
McChesney, Telecommunications, Mass Media, & Democracy: The Battle for the Control of U.S.
Broadcasting, 1928-1935 (1993). While McChesney’s history is a gripping and important one, it is
consistent, rather than inconsistent, with the hypothesis that the US system was “tipped” by 1926. The
power of the networks, which had captured the political process in the 1930s, is rooted in the business
history of the first half of the 1920s. The story McChesney tells is therefore a story of how that earlier
moment, when we were locked into the regulated, concentrated commercial industry model, worked itself
out over almost a decade, rather than describing a moment of true openness and missed opportunity. The
stakes of this interpretation for understanding Internet policy today are high. My version, the version I
ascribe to Barnouw, requires an immediate focus on economic and technical structure as long as the
technological and business organization of the Internet communications environment are open. Time is of
the essence, and structural regulation is the objective. His version would suggest that political action to
attain regulatory control of an already-embedded technical-business structure is potentially effective. Time
is a little looser, and behavioral regulation is a feasible path of reform.

55
on the basis that it inefficiently regulated the legal right to construct a wireless system by
regulating spectrum use, instead of creating a market in “spectrum use” rights. 162

By the time that legislatures in the United States and around the world had begun
to accede to the wisdom of the economists’ critique, however, it had been rendered
obsolete by technology. 163 In particular, it had been rendered obsolete by the fact that the
declining cost of computation and the increasing sophistication of communications
protocols among end- user devices in a network made possible new, sharing-based
solutions to the problem of how to allow users to communicate without wires. Now,
instead of having a regulation-determined exclusive right to transmit, which may or may
not itself be subject to market re-allocation, it is possible to have a market in small scale
162
The locus classicus of the economists’ critique was Ronald Coase, The Federal Communications
Commission, 2 J. L. & Econ. 1 (1959). The best worked-out version of how these property rights would
look remains Arthur S. De Vany et al., A Property System for Market Allocation of the Electromagnetic
Spectrum: A Legal-Economic-Engineering Study, 21 STAN. L. REV. 1499 (1969). While those works
were deeply revolutionary for their time, and cohered with the then-prevailing technological-economic
conditions and the state of the radio engineering discipline, the position that “spectrum” had to be
“managed” by someone, and that that someone must be either the government or an owner of property
rights defined in RF frequency bands, turns out, in hindsight, to have been technologically contingent rather
than generally stable.
163
For the full argument see Yochai Benkler, Some Economics of Wireless Communications, 16 Harv. J L
& Tech. 25 (2002); and Overcoming Agoraphobia, supra. For an excellent overview of the intellectual
history of this debate, a detailed explanation of the emerging business models around sharing radios, and a
contribution to the institutional design necessary to make space for this change see Kevin Werbach,
Supercommons: Towards a Unified Theory of Wireless Communication, forthcoming, Texas L. Rev.
(2004). The policy implications of computationally intensive radios using wide bands were first raised, to
my knowledge, by George Gilder in The New Rule of the Wireless, Forbes ASAP, March 29th, 1993, and
by Paul Baran, Visions of the 21st Century Communications: Is the Shortage of Radio Spectrum for
Broadband Networks of the Future a Self Made Problem? Keynote Talk Transcript, 8th Annual Conference
on Next Generation Networks Washington, DC, November 9, 1994, available
http://www.eff.org/pub/GII_NII/Wireless_cellular_radio/false_scarcity_baran_cngn94.transcript. Both
statements focused on the potential abundance of spectrum, and how it renders “spectrum management”
obsolete. Eli Noam was the first to point out that, even if one did not buy the idea that computationally
intensive radios eliminated scarcity, they still rendered spectrum property rights in spectrum obsolete, and
enabled instead a fluid, dynamic, real time market in spectrum clearance rights. See Eli Noam, Taking the
Next Step Beyond Spectrum Auctions: Open Spectrum Access, 33 IEEE Comm. Mag. 66 (1995); later
elaborated in Eli Noam, Spectrum Auction: Yesterday’s Heresy, Today’s Orthodoxy, Tomorrow’s
Anachronism. Taking the Next Step to Open Spectrum Access, 41 J. Law & Econ. 765, 778-80 (1998). The
argument that equipment markets based on a spectrum commons, or free access to frequencies, could
replace the role planned for markets in spectrum property rights with computationally intensive equipment
and sophisticated network sharing protocols, and would likely be more efficient even assuming that scarcity
persists, is Benkler, Overcoming Agoraphobia, supra note 161. Lawrence Lessig, CODE (1999) and
Lawrence Lessig, THE FUTURE OF IDEAS (2001) developed the argument that relied on the parallel structure
of innovation in the original Internet end-to-end design architecture and of open wireless networks, offering
a rationale based on the innovation dynamic in support of the economic value of open wireless networks.
David Reed, Why Spectrum is Not Property, The Case for an Entirely New Regime of Wireless
Communications Policy (February 2001) available at
http://www.reed.com/dprframeweb/dprframe.asp?section=paper&fn=openspec.html and David Reed,
Comments for FCC Spectrum Task Force on Spectrum Policy, filed July 10, 2002 and available at
http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6513202407 crystallized
the technical underpinnings and limitations of the idea that spectrum can be regarded as property.
Comments to the Task Force generally were the first substantial set of public comments in favor of a
spectrum commons.

56
capital goods—smart radio equipment owned by individuals, much like automobiles and
PCs—which embed in the devices the technical ability to share capacity and cooperate in
the creation of capacity. These radios can cooperate by relaying each other’s messages,
or by temporarily “lending” their antennae to neighbors to help them decipher messages
of senders who are not entitled to exclusive use of the spectrum. 164 Described in terms of
this paper, radio and computer technology has changed so as to make radio transceivers
shareable goods with an excess capacity to generate wireless transport capacity, which,
like distributed computers and like automobiles, their owners can share so as to produce
wireless communications systems. The reasons that the owners share are relatively
straightforward in this case. Users want to have wireless connectivity all the time, to be
reachable and immediately available everywhere. But they do not actually want to
communicate every few microseconds. They will therefore be willing to purchase and
keep turned on equipment that provides them with such connectivity. Manufacturers, in
turn, will develop and adhere to standards that will improve capacity and connectivity.
Given that “cooperation gain” is the most promising source of better-than- linear capacity
scaling for distributed wireless systems, 165 these standards should gravitate towards
interoperability and mutual awareness of requirements. Whether there are technically
robust ways of “cheating” on a standard to improve performance by not cooperating is
debatable, 166 but it is doubtful that, even if achievable in principle, cheating could be
done on a commercial scale without detection and in compliance with interoperability
standards. Users, then, have incentives to keep systems turned on, manufacturers have
incentives to “share nicely,” and defections from sharing are likely to be reasonably
identifiable. What remains for consideration in the regula tory process is how much, if
any, background regulation of systems is necessary to constrain specifically strategic
defections from cooperative standards, and in what flavors—as pre-certification rules, as
liability rules, etc. This is a hard problem that will not likely be solved theoretically, but
rather through practical experimentation with different regimes in different parts of the
already-regulated spectrum.

164
A reasonably accessible description of the various techniques is Andrea Goldsmith and Stephen Wicker,
Design challenges for energy-constrained ad hoc wireless networks, 9 IEEE Wireless Comm. 8 (2002).
165
See Benkler, Some Economics, supra note 163, at 44-47 (providing definition and underlying technical
citations). The term “cooperation gain” was developed by David Reed, see Reed, Comments to FCC,
supra note 163, to describe a similar, but somewhat broader concept to what is known as “diversity gain” in
multi-user information theory.
166
Compare D. P. Satapathy and J. M. Peha, “Spectrum Sharing Without Licenses: Opportunities and
Dangers,” in “Interconnection and the Internet,” book of Selected Papers From The 1996
Telecommunications Policy Research Conference, (G. Rosston and D. Waterman (Eds.) 1997) pp. 49-75
(modeling defection in unlicensed wireless systems) with Timothy Shepard, Comments to the FCC
Taskforce, FCC ET Docket (02-135), available at
http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6513201206 and
additional comments at
http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6513405081. Shepard,
who was the first theoretical engineer to build a workable model of municipal-level scalable networks in a
mesh architecture, see Timothy Shepard, Decentralized Channel Management in Scalable Multi-hop
Spread Spectrum Packet Radio Networks (1995) (unpublished Ph.D. dissertation, MIT, on file with the
MIT library), explains why adding power—the quintessential strategy that would lead to tragedy, and
require regulation, is not the only, and indeed not the most desirable, mechanism of dealing with increased
power by anti-social neighbors.

57
 Cooperative, sharing-based wireless connectivity can emerge if it is not illegal for
the vendors of wireless equipment to produce and sell the machines that let people share
their capacity and help each other to communicate. The past few years have seen at first
slow, and more recently quite dramatic, change in the United States in the extent to which
the FCC and Congress have recognized this opportunity and have begun to make
regulatory space for its development. Indeed, in the past year and a half alone, a major
shift has occurred, and what have been called “commons-based” approaches to wireless
communications policy have come to be seen as a legitimate, indeed a central, component
of the FCC’s wireless policy. 167 We are beginning to see in this space the most
prominent example of a system that was entirely oriented towards improving the
institutional conditions of market-based production of wireless transport capacity as
functionality flows—connectivity minutes—shifting to enable the emergence of a market
in shareable goods—smart radios—designed to provision transport on a sharing model.

B. Information, knowledge, and cultural production policy

Another area of policy where sharing and market/firm-based production based on

a particular regulatory environment are coming into conflict, and one where regulation
has quite systematically weighed in to support the cont inued prevalence of market- and
firm-based production, is in cultural production. 168 The story of music that I told in the
prior section is the paradigmatic case of pressure that the ubiquity of networked
computers is placing on our understanding of how information, knowledge, and culture
are produced, of the potential these networks have for increasing the relative role of
sharing systems in that production process, and of efforts to use law to squelch the
technological conditions and practices of sharing and social production of distribution.

In many senses, it is odd to think of this area as one that ever came to be thought
of as “dominated” in any useful meaning of the word by market production. As an
analytic matter, information is a public good and could not, in principle, be provisioned
efficiently by markets alone. 169 As a practical matter, we have always relied heavily on
organizational and institutional forms that were insulated from both state and markets to
produce information, knowledge, and culture. That is what the university and academic
freedom are centrally about. That is what underlies the heavy reliance of the arts on
philanthropy and on a culture of esteem and status as crucial motivating forces. That is
what public schools and libraries are about. Our understanding of information,
knowledge and culture as “public goods” in the formal economic sense should have
immunized us from mistaking the presence of important market-based approaches for the
whole, or even the core, of the story of information and cultural produc tion. And yet, it
does seem that our perception of where information generally, and culture in particular,

167
See Michael Powell, Broadband Migration III: New Directions in Wireless Policy (Oct 30, 2002),
available http://www.fcc.gov/Speeches/Powell/2002/spmkp212.html; Spectrum Policy Task Force Report
to the Commission, November 2002, available http://www.fcc.gov/sptf/reports.html.
168
The conflict is brilliantly described and engaged in Lawrence Lessig, Free Culture (2004); Jessica
Litman, Digital Copyright (2001); Siva Vaidhyanathan, Copyrights and Copywrongs (2001).
169
Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in The Rate and
Direction of Inventive Activity: Economic and Social Factors 609, 616-17 (National Bureau of Economic
Research, 1962).

58
come from came to be dominated over the second half of the 20th century by a vision of
Hollywood and the recording industry.

As the story of mus ic suggests, the rise of Hollywood and the recording industry
is a function of the happenstance of the 20th century economics of film and music
recording and distribution. It is the relative capital intensity of these industries—
involved in recording, distribution, and production—that underlies the industrial structure
of these industries. This structure, in turn, and the political force of its industries,
underlies the steady but inexorable changes in copyright law, from a relatively brief
period of statutory exclusivity over commercial distribution at the turn of the 20th
century, to a practically perpetual and broad right over almost any use of the information,
knowledge, or cultural materials covered by the close of that century.

On the background of the iconic role of movies and recorded music in framing
how we understand our cultural production system, Napster emerged towards the close of
the century as the counter- icon of the technological shift that radically disrupted that
model. In the legal battles that have followed, the industry has ever more virulently
invoked the powers of the state to squelch the use of this technology and its attendant
social-cultural attitudes. In these battles the revolutionary effect of peer-to-peer
technologies and of sharing as a modality of production—in the case of music, of
distribution, relevance, and accreditation—have been overshadowed. 170

Free software development, and peer production more generally, combine two
features that make them the polar opposite of Hollywood and the recording industry.
First, they decentralize the legal privilege to decide to act upon information resources in
pursuit of information production projects. One needs no permission to participate in a
peer production project, to use any particular piece of software as input, or to combine it
with any other. Second, the capital costs necessary to obtain, rework, and communicate
the products of one’s work to others with whom one is cooperating in production are low,
and already owned for a variety of reasons by the participants. Neither capital nor legal
rights provide a condensation point for hierarchical or property-based relations.

The policy conflict between these modes of production has emerged in two
domains. First, and more immediately tractable to policy, is the question of government
procurement policy vis-à-vis free software. Led by Microsoft, 171 some software
producers who depend on copyright have fought a battle to persuade governments to
eschew free software in their procurement policies, as against an opposite political move

170
For an overview of the state of music and film industry in the twentieth century, and of the battles since
its closing years between the industrial producers and the emerging online technologies see William W.
Fisher, Promises to Keep: Technology, Law, and the Future of Entertainment (2004).
171
See Dave Newbart, Microsoft CEO take launch (sic) break with the Sun-Times, June 1 2001 pg 57,
(quoting Microsoft CEO Steve Ballmer: “The only thing we have a problem with is when the government
funds open source work. Government funding should be for work that is available to everybody. Open
source is not available to commercial companies. The way the license is written, if you use any open source
software you have to make the rest of your software open source. If the government wants to put something
in the public domain, it should. Linux is not in the public domain. Linux is a cancer that attaches itself in an
intellectual property sense to everything it touches. That's the way that the license works.”)

59
to embrace free software—whether as a strategy to lower government software costs, as a
development policy to allow local programmers to develop skills in, and opening
towards, free software markets, 172 or as a strategy to assure diversity of sources for
mission critical applications. 173 An understanding and appreciation of the ubiquity and
stability of social sharing based production is important as an input into this debate.

More complex is the debate over the industrial structure of cultural production, in
particular music and movies. Unlike the peer production enterprises I mention here,
Napster and its successors from Gnutella to KaZaa are not involved in the creation of
music. In what way, then, are Napster and KaZaa “productive”? They are productive in
the same sense that the recording industry deems its role in stamping CDs, promoting
them on radio stations, and placing them on distribution chain shelves productive. That
is, they produce both the physical and informational aspects of the distribution system
collaboratively, on a social sharing basis. This is what Eben Moglen called anarchist
distribution, and for which he claimed the perfectly plausible advantage that it put the
music people wanted into the hands of those who wanted it most, based on the six
degrees of separation principle. 174 Jane’s friends and friends of friends are more likely to
know exactly what music would make her happy than are recording executives trying to
predict which song to place, on which station and which shelf, to expose her to exactly
the music she is most likely to buy in a context where she would buy it.

So KaZaa produces distribution of music on a sharing modality. Distribution is

indeed a separate economic good from music creation, and yet was centrally tied to the
way the production of music and movies has been paid for throughout the 20th century.
The ties were so close, in fact, that in displacing industrial distribution, peer-to-peer
distribution is thought both by its critics and by some of its adherent to be likely to
undermine the very possibility of industrial production of music. Now, there are some
artists who welcomed this development, understanding that the model of production they
were part of was industrial, and believing that artistic expression was being constrained
by it. 175 But others were perfectly happy with industrial distribution, and the millions of
dollars that they either did, or believed that they might one day, reap from it. Certainly
there are recording industry executives who se roles have no existence outside of the
industrial organization of music production and distribution.

Needless to say, it is not my purpose here to “solve” the question of peer-to-peer

networks and their effect on the music industry. As the Northern Virginia “slugs” have
taught us, social provisioning through sharing can at least partially displace market
provisioning, and we have no reason to believe that it could not in principle crowd that
modality out entirely—despite the current ambiguity as to whether peer-to-peer sharing

172
See text of Peruvian proposed bill, and its explanations, available Peruvian Bill, available at
http://www.opensource.org/docs/bill-EngTrans.php.
173
President’s Information Technology Advisory Committee, Developing Open Source Software to
Advance High End Computing, October, 2000. http://www.ccic.gov/pubs/pitac/pres-oss-11sep00.pdf.
174
See Moglen, supra, note 160.
175
See, e.g., Courtney Love, Courtney Love Does the Math, in Salon, June 14, 2000, available
http://dir.salon.com/tech/feature/2000/06/14/love/index.html; see The Future of Music Manifesto,
http://www.futureofmusic.org/manifesto.

60
indeed crowds out CD sales. 176 Is there a future for sharing-based music distribution? Is
the displacement of industrial distribution by sharing-based distribution necessarily the
end of market-based music production? Much of the actual flow of revenue to artists—
from performances and other sources—are stable even assuming a complete displacement
of the CD market by peer-to-peer distribution, suggesting that there will still be room for
musicians to play for their dinner. Perhaps the re will be fewer millionaires. Perhaps
fewer mediocre musicians with attractive physiques will be sold as “geniuses”, and more
good musicians will be heard than otherwise would have, and will as a result be able to
get paying gigs instead of waiting tables or “getting a job”. In any event, no one
seriously claims that the market in distribution cannot be sustained on a radically
decentralized mode. As long as songs—intrinsically public goods—are encoded in
digital bits that are non-scarce, as long as users have computers that allow them to share
their playlists and hard-drives, temporarily, with others, sharing will be sustainable,
indeed likely more efficient, as a means of distributing music.

As for creation, it would be silly to think that music, a cultural form without
which no human society has existed, will cease to be in our world because we shall
abandon the industrial form it took for the blink of an historical eye that was the 20th
century. Music was not born with the phonograph, nor will it die with the peer-to-peer
network. The terms of the debate, then, are about cultural policy; perhaps about
industrial policy. Will we get the kind of music we want in this system, whoever “we”
are? Will American recording companies continue to get the export revenue streams they
do? Will artists be able to live from making music? Some of these arguments are
serious. Some are but a tempest in a monopoly-rent teapot. What is clear is that a
technological change has rendered obsolete a particular mode of distributing information
and culture. Distribution, which used to be the sole domain of market-based- firms, now
can be produced by decentralized networks of users, sharing instantiations of music they
deem attractive with others, using equipment they own and generic network connections.
That is, users combine public goods (songs) with shareable goods (storage media and
bandwidth) to provision the core good that was the bread and butter of the traditional
industrial producers of music.

Policy is concerned now with whether and to what extent it should try to squelch
this new modality of production to preserve the operating conditions of the old.
Understanding the causes of the challenge suggests that three powerful elements will
have to be, practically speaking, regulated away in order to preserve the old industrial
structure. The newly emerging modality of production relies on (a) the most fundamental
technical characteristics of digital communications networks—their flexibility and
adaptability, (b) a technological-economic trend towards lower cost, higher capacity
processors that has been a stable feature of the computer industry for four decades, and
(c) the ubiquitous and deeply engrained cultural practices and social-psychological
mindsets that form the transactional framework for an enormous amount of productive
activity in our society, on and off line—sharing. The practices of, and taste for, sharing
are not epiphenomenal to the economy. They are not a new hip thing kids are doing,

176
See Felix Oberholzer and Koleman Strumpf, The Effect of File Sharing on Record Sales, (working
paper) available at http://www.unc.edu/~cigar/papers/FileSharing_March2004.pdf.

61
which will pass like any fad. 177 They are as much a part of capillary production—“Jack,
could you put the brown box on the high shelf”—as the incentives of money and the
contract and property systems are central to the arteries—“Allied Vans, could you move
the brown box to the bedroom in California.” It is breathtaking to imagine that all this
would be legislated away in order to preserve the margins of two industries with revenues
of 76 billion dollars a year. 178 The solution must assume that peer-to-peer file sharing is
here to stay. Once we understand that, we can focus our energies on the range of
solutions that have been suggested—from government funding to tipjars and
performances. 179

C. Network design for a network of shareable goods

Not all policy is legal. As Larry Lessig has taught so many of us so well, so is the
architecture of “code.”180 A large domain of communications policy operates at the level
of network architecture, and the assumptions engineers make about what practices are
sustainable, socially, inform their design choices. If engineers believe that people can be
made to cooperate only through pricing, then where a network calls for cooperation, they
will seek to implement a pricing mechanism. If they believe that social sharing is
possible and sustainable, they could build networks to assume that possibility, and to
facilitate social sharing. The actual practice of Internet design has been ambivalent on
this question. The basic Internet protocol design itself does not include a possibility for
prioritizing traffic using pricing. It relies exclusively, at the transmission control protocol
layer—that is, at the congestion control mechanism—on best efforts, undifferentiated
service. Predictions that the Internet would therefore melt down were followed by
assiduous development of pricing schemes for traffic prioritization at the packet level. 181
And yet, pricing has not been implemented, and the Internet has not melted down. Users
have not adopted any of the many more-or-less sophisticated pricing schemes proposed
over the past decade or more. Instead, ever more demanding applications for real-time

177
On the centrality of sharing as a modality of cultural production on the Net, and its conflict with the
notion of “stealing” music see Jessica Litman, Sharing and Stealing, (draft) available at
http://www.law.wayne.edu/litman/papers/sharing&stealing.pdf.
178
See 2002 Economic Census, Table 1: Advance Summary Statistics for the United States, NAICS
Category 512, available http://www.census.gov/econ/census02/advance/TABLE1.HTM.
179
Two state-oriented solution based on taxing devices and remunerating artists and labels, are Fisher,
supra note 169, Chapter 6, and Neil W. Netanel, Impose a Noncommercial Use Levy to Allow Free Peer-
to-Peer File Sharing, 17 Harv. J. L. & Tech. 1 (2003). Artists themselves seem focused on building on a
variety of self-help mechanisms based on their relationships with fans, ranging from live performances to
web-based distribution on a tip jar model. See the now-classic John Perry Barlow, The Economy of Ideas,
Wired 2.03 (March 1994), available http://www.wired.com/wired/archive/2.03/economy.ideas.html; Love,
supra note 174, at 5. Future of Music coalition, for example, provides artists with instructions on how to
implement tip jars, see http://www.futureofmusic.org/tipjars/index.cfm.
180
Lawrence Lessig, Code and Other Laws of Cyberspace (2000).
181
Jefferey Jackie Mason and Hal Varian, Economic FAQs About the Internet, 8 J. Econ. Persp. 75 (1994);
S. Shenker, D. Clark, D. Estrin, S. Herzog, Pricing in computer networks: reshaping the research agenda,
20(3) Telecomms. Policy (1996); Andrew Odlyzko, Paris metro pricing, The minimalist differentiated
services solution, AT&T Labs Research report (1997); F.P. Kelly, A.K. Maulloo, D.K.H. Tan, Rate control
for communications networks: shadow prices, proportional fairness, and stability, 49 J. of Operational
Research Society 237-252 (1997); Peter B. Key and Derek R. McAuley, Differential QoS and Quality in
Networks: where flow-control meets game theory, IEEE Proceedings Software, March 1999.

62
streaming, and even the most latency-sensitive of applications—like voice over internet
protocol (VoIP), have begun to be implemented without introducing pricing. I suggest
that this may be occurring because communicating through the internet systematically
involves using shareable goods, and that when this is so, algorithms designed to let
people share their capacity and balance load among units that have overcapacity when
they have overcapacity offer a better solution than algorithms designed to enable the
millions of transactions necessary to achieve a comparably efficient network service.
Demand for units with overcapacity increases capacity over time, and sharing and load-
balancing allocate extant capacity in the short term. Let me illustrate with one VoIP
application, which makes quite clear the possibilities of generalized, impersonal social
exchange as a means of provisioning network resources over a price- insensitive network
made of shareable goods.

The application is Skype. 182 It is proprietary software provided by the makers of

KaZaa, currently the most popular peer-to-peer music sharing platform. 183 There are no
published performance studies of this network relative to the telephone network and other
pc-to-pc voice telephony over internet applications. As of early 2004, however, while
still in beta-testing, the software was downloaded by over ten million users, and used at
any one time by over 300,000. Anecdotally the software seems to function well, offering
voice quality and reliability—again, anecdotally—on par with cordless phones, if not
quite plain old telephone service. What is fascinating about this application, if it proves
capable of scaling technically (leaving the business model to one side), is that it relies on
a peer-to-peer network. The capacity used to deliver the service is purely combined from
capacity- generating components that have the characteristics of shareable goods. Users
put these components into service for reasons other than voice-grade telephony, but
182
http://www.skype.com.
183
The following description is drawn from Peter Biddle, Paul England, Marcus Peinado, and Bryan
Willman, The Darknet and the Future of Content Distrubtion, available
http://crypto.stanford.edu/DRM2002/darknet5.doc; Clay Shirky, PCs are the Dark Matter of the Internet,
http://www.shirky.com/writings/dark_matter.html. Skype runs on a structured decentralized peer-to-peer
network on the model of KaZaa. The first major peer-to-peer network, Napster, relied on a centralized
server to store information about which peer had what music. While peers then communicated directly
with each other and downloaded music one from the other’s computer from one end of the network to
another, no peer could communicate directly with the other without first identifying the relevant other by
reference to a central listing. This made the communications protocol simple to design and execute, but the
system vulnerable to attack and failure. The particular attack on that server was legal action, and the failure
was a court ordered closure. But the weakness was architectural—there was a single point of attack that
could bring the system down. The response of the community of technology developers was to treat the
legal attack like any other failure, and to design around it. The result was Gnutella and a class of
approaches to peer-to-peer network design that avoided creating a center that would be vulnerable to attack,
but had very high overhead, because it had no central clearing point about who had what information stored
where. FastTrack, with its best known clients Morpheus and KaZaa, introduced Supernodes , which added
structure to the network of peers, but still was insufficiently centralized, to suffer the failure of Napster.
The software dynamically assigns to users “Supernode” status based on their available resources, and
instead of every node telling every other node everything it had and everything it wanted, every node told
these things to its nearest supernode, and supernodes told each other, keeping network traffic and
information overhead low, while retaining redundancy, flexibility in the distribution of the location of
information, load balancing among nodes with more or less free capacity, and flexible rerouting around
points of failure. The result is a system that is much more popular than Napster was, but offers no single
point of failure for attack.

63
Skype allows them to share their overcapacity so as to co-provision a telephony system.
(We can afford to leave the business model aside because Skype is an architecture and
some software, not a physical network. It hence could, in principle, be developed on a
free software model should one company or another fail.) In an always-on or even
mostly-on universe, where PCs have large amounts of unused memory and bandwidth,
and a client like Skype’s runs in the background taking up proportionally miniscule
amounts of CPU power, bandwidth, and electricity, there will be little need to provide
incentives to avoid shirking. The interest every user has in being reachable by his or her
friends should provide enough incentive to keep one’s client on and connected. Except
for rare people who speak for more hours than they do not in any given 24 hour period,
and who are capable of using their computer to its capacity while at the same time
talking, so that they take resources from the VoIP network without contributing at least as
much back into it in their own excess processing, caching, and bandwidth capacities, the
system capacity should scale well from the perspective of willingness of participants to
contribute as much as they take or more.

The policy point of the Skype story is fairly simple. VoIP is one of the most
demanding applications, insofar as QoS assurance is concerned, because we have such
remarkably low tolerance for latency in voice communications. VoIP has therefore been
the primary excuse for schemes aimed at implementing pricing at the transmission
control protocol level, so as to introduce pricing to manage congestion. Skype suggests
that pricing is unnecessary if the machinery necessary for VoIP is sufficiently widespread
and is a shareable good. PCs and broadband connections in the advanced economies
indeed have the core characteristics of shareable goods. They are provisioned by
individuals for their individua l purpose in lumpy units that mostly exhibit substantial
overcapacity. Given that requirements for human voice communications are limited by
human capacity to comprehend and engage in real time communications, but capacity is
generated by demand for a much wider host of applications, most of them allowing
asynchronous use, the lumpiness of these units should persist. Given also that one needs
to have such an overcapacity-generating good or resource to participate in pc-to-pc
communications in the first place, demand will outstrip capacity only in the very unlikely
case that the total demand for capacity by all owners of units will systematically outstrip
total capacity of all units put in place by owners, even though the units are put in service
only if they indeed provide some threshold capacity that equals or exceeds the
requirements of the owner of the unit. This is not theoretically impossible, 184 but is
probabilistically insignificant. In parallel to my observations about open wireless
networks, if the devices necessary to take advantage of a functionality have the
characteristics of shareable goods, it is possible that a market in capacity generating units
with overcapacity, sold on a per unit basis, coupled with a technical platform that allows
them to share their overcapacity and balance the load among units, will increase capacity
better than an approach that assumes a fixed capacity provisioned through a market in
capacity flows.

184
The units meet prior demand exactly, skype adds exactly so much demand that it overwhelms the system
capacity, but not enough added demand to make enough people buy enough new units with even greater
over-capacity to achieve sufficient total capacity in the new state.

64
 VI. Conclusion

This paper has two primary goals. The particular goal is to identify a class of
resources or goods that are amenable to being shared within social sharing systems rather
than allocated through markets. The general goal is to suggest that the particular
observation, together with a growing body of literature on social norms, social capital,
common property regimes, and the emergence of peer production outline the contours of
social sharing as a third mode of organizing economic production, alongside markets and
the state.

I suggest in this paper that there is a class of resources or goods that are lumpy
and of medium granularity. These goods exhibit systematic overcapacity, which is often
subject to sharing practices. Lumpiness is a technologically determined characteristic of
these resources. Granularity is a function of technology and the extant demand and
wealth in a society. It describes the divergence between the package size of a unit of a
good capable of producing functionality and the demand individuals have for that
functionality. Medium- grained lumpy goods are large enough so that each unit has
systematically more capacity than one person requires over the lifetime of the good, and
small enough that one person can justify putting a unit into operation to serve that
person’s demand for the functionality over the lifetime of the unit, given that person’s
ability and willingness to pay. Such units will generally have an overcapacity on an
aggregate basis, in the sense that they will be able to deliver more functionality over their
lifetime than the owners of units will demand in that time period. Goods with these
characteristics will systematically represent a pool of potentially idled resources. The
problem to solve for these goods is whether and how these idle resources will come to be
used by individuals who gain welfare from using them at a time when their owners do not
demand their capacity.

Information and transaction costs, and the practical diversity of individual

motivations, limit the efficacy of secondary markets to harness this excess capacity. The
comparative efficiency of social sharing systems and secondary markets is a context
specific, empirical matter, but one can generalize that markets (a) will have higher
marginal transaction costs per transaction, because social exchanges can have
systematically fuzzier boundaries than market transactions require, (b) will have less
information, organized in a more formally computable form, at the expense of more
textured, detail information that can be computed in less formal, culturally-transmitted
modalities, and (c) may, by using pricing, crowd out social psychological rewards that
would elicit sharing patterns. Sharing is likely to dominate, however, where shareable
goods are widely owned and have only small amounts of excess capacity. In those cases,
the number of transactions necessary to accumulate the excess capacity into a usable
amount of functionality, on the one hand, and the likely low price that small incremental
contributions will command, on the other hand, suggest that both transaction costs and
crowding out effect will be substantial if a secondary market is used in these situations.

More generally, I suggest that shareable goods are but one instance of a broader
phenomenon, outlined by the literature on social norms, social capital, and most directly

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common property regimes. The broader claim is that social production and exchange
comprises a third system of production, a class of solutions to production problems that is
separate from, and can complement or substitute for, the two more commonly studied
systems—markets and the state. The relative salience of social production or sharing as
an economic phenomenon is technology dependent. In particular, the form of sharing
that we are observing today occurring in information and communications production—
relatively impersonal, project or function-specific, radically decentralized cooperation—
depends on the technologically-contingent capital requirements for effective action. As
capital requirements have declined and access to the relevant capital goods has become
widely disseminated in advanced economies, the scope of sharing as a modality of
production has increased. Understanding this fundamental change in the material
conditions of production is important because we find ourselves posed with policy and
design questions that assume that the role of market production is fixed, rather than
technologically-contingent. We are observing in many contexts policy choices and
design impulses that take assumptions appropriate to the capital requirements of
industrial economies and are trying to force behavior in the digitally networked economy
into the social and market behavioral patterns that were appropriate for that technological
stage and capital structure, rather than for the one we live in today.

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