Tuesday, August 23, 2016

A First Mover Illustration of General Equilibrium Limits

Some readers may recall my praise of Hernando de Soto in an early post. Hence the title I chose here reflects an inadvertent service he has also accomplished. De Soto's extensive work exposes the fact that secondary market limits in knowledge use, pose issues for land and property ownership as well.

No one ever claimed that increasing economic access would be an easy process! Being a "first mover" in real life has its dangers, hence the more influence one has in the course of their lifetime, the more this may need to be taken into account. Tyler Cowen notes a paper which considers a set of results from de Soto's efforts, in "How useful is it to formalize land titles?" Here's Cowen:
This piece helps explain why Hernando de Soto's ideas, however useful they may be in some regards, have not quite transformed either the world or for that matter the practice of development economists. 
Here is a good sentence from the paper. "The cost of processing the inheritance of an asset valued at US $11,700 is about US $2,300." Legal systems are a normal good, and legalizing everything too quickly leads to burdens as well as benefits..."When property rights are transformed to very poor people, preserving legal tenure will likely entail onerous expenses..." 
If there is anything that can be said about general equilibrium conditions: a secondary marketplace framework for time based services, has little choice but to conform to discretionary income values appropriate to high income levels. Otherwise, present day time investment commitments would involve too much risk, to adequately secure asymmetric compensation. Unfortunately, the knowledge limits inherent in these guidelines, means a great deal of impracticality is involved across income spectrums, in the provision of legal, health related and educational services.

These disadvantages would be taken into account by equilibrium corporations, which would simplify the use of knowledge based structure, in particular for those who would gain from linking time value with asset formation. It's a process which would give knowledge use a chance to gradually evolve - over time - as a major productivity component in a primary marketplace for time value. However, knowledge use simplification would take place so as not disrupt the valuations or pricing structures of today's prosperous regions.

It helps to remember that what appears as though poverty (at first glance), is a result of many causes. Some of this varied commonality is also voluntary, in the sense distilled resource capacity allows individuals to focus on certain life challenges which aren't necessarily available, on general equilibrium terms. Hence the equilibrium corporation would provide alternate equilibrium options for people who struggle for whatever reasons to meet the demands of general equilibrium.

Land ownership needs broader definition, to assist this process. In a recent post I discussed the possibilities of land as symbolic coordination value. Often, land value is tied to a continuum of previous organizational capacity which experiences strong serendipitous gains. By making room for flexible coordination points as a part of ownership processes, people gain choices that go beyond the either/or framework of ownership in the present. In particular, legal ownership constructs need more choice sets not just for lower income levels, but also for multiple aspects of ownership which include ongoing business risk.

The struggles of developing nations in this regard are instrumental, in part because they point to unresolved issues between income levels and knowledge use in developed nations. Indeed, potential solutions for 21st century problems need to be devised in ways that meet a wide range of economic circumstance, regardless of the nation involved.

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