Coherence between Institutions and Technologies

Rolf Künneke

PHD course De- and Re-regulation of Network IndustriesDelft, 20th to 24th April 2009

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Overview

• Problem statement• Infrastructures as complex socio-technical

systems• Conceptual framework• The coherence between institutions and

technology• Case study• Conclusions

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Problem statement

• Liberalization of infrastructures is often perceived as a matter of institutional change only

• However, technology is an important enabling factor or even a barrier

• Hypothesis:The technical functioning of infrastructures needs to be supported by suitable institutional regimes in order to perform satisfactorily

• Problem statement:How to specify the interrelation between institutional and technological coordination and relate them to the (technical) performance of infrastructures?

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Infrastructures as complex socio-technical systems

• Large scale systems• Providing essential services to society• Strong degree of complementarity, technical as

well as institutional• Interrelation between technology and social

system• Features: Lock in effects, path dependence,

multiple equilibriums, persistent inefficiencies

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How to relate technology to institutions?

• Large Technical SystemsHughes, T.P. (1987), 'The Evolution of Large Technological Systems', in: Bijker, W.E., Hughes, T.P., Pinch, T.J. (Eds.), The Social Construction of Technological Systems. New Directions in the Sociology and History of Technology, MIT Press, Cambridge (Mass) and London, pp. 51-82.

• Co-evolution between technology and institutionsNelson, R.R., Nelson, K. (2002), 'Technology, Institutions and Innovation Systems', Research Policy, 31, 265-272.Von Tunzelmann, N. (2003), 'Historical Coevolution of Governance and Technology in the Industrial Revolutions', Structural Change and Economic Dynamics, 14, 365-384.Nelson, R.R. (1994), 'The Co-evolution of Technology, Industrial Structure, and Supporting Institutions', Industrial and Corporate Change, 3, 47-63.

• Transition theoryGeels, F.W., Schot, J. (2007), 'Typology of Sociotechnical Transition Pathways', Research Policy, 36, 399-417.Rotmans, J. (2003), 'Transitiemanagement: Sleutel naar een duurzame samenleving', Van Gorcum.

• Capacity utilizationNightingale, P., Brady, T., Davis, A., Hall, J. (2003), 'Capacity Utilization Revisited: Software, Control, and the Growth of Large Technical Systems', Industrial and Corporate Change, 12, 477-517.Beniger, J.A. (1986), 'The Control Revolution. Technological and Economic Origins of the Information Society', Harvard University Press, Cambridge, Massachusetts.

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Conceptual framework (1)

• Network features• Traditional market failures:

• External effects, common pool resources, increasing returns, network effects

• Network characteristics:• Complementarities• Different network structures

• Governance• Common pool resource problems• Asset specificity• Strategic behavior

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Conceptual framework (2)

• Infrastructure performance• Economic performance depends on network

effects, free rider behavior, CPR problems

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Conceptual framework (3)

• Public values: provision of essential services to society

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Conceptual framework (4)

• Technical system integrity: Systems performs according to certain expected technical criteria

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The coherence between institutions and technology

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System relevant functions

• Interconnection: physical linkages of different networks that perform similar or complementary tasks

• Interoperability: mutual interactions between network elements are enabled in order to facilitate systems’ complementarity

• Capacity management: allocation of scarce network capacity to certain users or appliances• Strategic, tactical or operational level

• System management: safeguarding of the quality of service

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Technological and institutional governance (1)

Different coordination mechanisms:

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Technological and institutional governance (2)

• Technical and institutional scope of control• We consider the scope of technical and

institutional coordination as coherent if they are related to comparable system boundaries

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Relation between coherence and performance

• Interrelatedness of the three performance criteria

• Possible trade-off?• Static versus dynamic efficiency

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Case study: Electricity sector (1)

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Case study: Electricity sector (2)

• Künneke, R.W., Finger, M. (2007), 'Technology Matters: The Cases of the Liberalization of Electricity and Railways', Competition and Regulation in Network Industries, 8, 301-334.

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Conclusion

• Dealing with the interrelation between technological and institutional coordination is fundament in the reform of infrastructures

• Consequences for infrastructure policy?• Static approach. How to deal with dynamics?