Random thoughts about hierarchies and networks

In my post about network democracy, I discuss how a group of people might govern itself by forming a social network of trust associations that can be collated to weigh some votes more than others. I’ve been thinking more generically about societal structures a bit, specifically how structures are selected. Ok, I don’t have anything very complete or organized here, just some thoughts.

The first is that, it seems, that both hierarchical and scale-free network structures are stable. Specifically, if you consider each person as a node in a graph, and ask how you can fill in edges to arrive at a structure that achieves maximal agreement between neighboring nodes, deep hierarchies and scale-free networks stabilize, while other configurations do not (Stocker, et al).

This observation seems intuitive: the two ways people seem to get anything done is either by a rigid command structure (firms, military, government, etc), or by loose associations of common interests with community leaders (open source, election campaigns, etc).

The second thought is about Coase’s “The Nature of the Firm”, which states that firms form despite open labor markets because of transaction costs. In other words, it ends up being cheaper to hire a bunch of people rather than contract work on a piecemeal basis.

It also seems intuitive that many transaction costs are technological. Mutual omniscience about who knows what and who to trust would make it trivial to assemble teams with shared goals on-demand. Search engines, social networks, open source software, and other innovations are far from delivering omniscience, but are definitely steps in that direction.

The other cost that Coase cites is information costs. There’s no question that the cost of discovering and sharing information (ie, communication) is approaching zero.

Ok, so the implication is that choices are made, somehow, between hierarchical structures and more free-form scale-free networks, and that a disruption in the costs associated with that choice could favor one structure over another.

I’d propose that this is what we’re seeing happen in journalism. Many of the costs of doing journalism, including The costs of gathering, sharing, vetting, and curating information are becoming so cheap, that the advantages that a firm had in the past are vanishing. As a result, a the equilibrium is shifting away from print and broadcast to scale-free networks like twitter. (Here’s an example that’s recent and local to me.)

A great case study for such a transition is in computing itself (as Jay Rosen wrote about ages ago). Clearly, open source software is based on scale-free networks, while closed-source software comes from hierarchical firms. Consider the web, and all the open protocols and standards that lower the costs of communicating and sharing as being the dominant model.

Also clear, is that closed source hasn’t gone away (Apple, Google, Microsoft, etc), and both models co-exist and have different strengths and weaknesses. In fact, it seems that closed-source thrives when it when interoperates with open source. The NYT piece today about how social network usage actually increases television popularity seems to confirm that this parallel might also appear in media.

I guess this framing serves as a kind of litmus test for “social” technologies, or ones that favor scale-free networks over firms. Their importance will depend on their ability to lower the transaction cost of accomplishing something. Increasingly, an important cost is filtering. This is a place where firms have traditionally had an advantage – eg: Firefox’s problem with too many developers.

And filtering comes back to trust.


3 Responses to “Random thoughts about hierarchies and networks”

  1. February 24, 2010 at 8:50 pm

    You claim that the costs gathering, discovering, and vetting information are approaching zero. This also underlies your assertion about the state of journalism. But reporting is still a form of labor and it takes a lot of work to do. And isn’t filter failure another way of saying that information is increasingly expensive to gather and vet?

  2. February 24, 2010 at 9:13 pm

    Aspects of journalism are becoming very cheap – for example, you don’t need a news wire to be kept up-to-date, and you don’t need a printing press to publish. I didn’t mean to suggest (though I could have worded it better) that all costs are approaching zero.

  3. February 26, 2010 at 2:27 pm

    Lyn also directed me to “Coase’s Penguin” – something I’d heard about but never read before. Here’s a good passage:

    in principle a world in which all agents can act effectively on all resources will be substantially more productive in creating information goods than a world in which firms divide the universe of agents and resources into bounded sets.

    Yeah. What he said.

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