Nanoeconomics

Nanoeconomics is the formulation, study, and analysis of the economic and business principles underlying the development and deployment of nanoscale know how, products, and systems. Nanoeconomics is defined as the economic theory of single transactions. The term was proposed by Kenneth J. Arrow in 1987. [1] The term has also been used to describe a level of analysis below traditional microeconomics [2][3][4], and to describe the economics of nanotechnology. [5][6]

Economics and Nanotechnology

The linkage between nanotechnology and economics is based on the relationship between innovation and prosperity. PROSPERITY depends on having a SERVICE or PRODUCT to sell; -- A service or product must be desirable and affordable, hence the must be a demand and a supply and the viable cost is determined by supply and demand; -- Productive INNOVATION is always in short supply and can ask for a high price. It is too new to be commoditized; -- Nanotechnology is almost inherently innovative; it will impact so many products and processes that its impact will cause churn amongst economic winners and losers; -- The INNOVATOR has to be able to pay for the costs of invention, prototyping and productization before competition has minimized the reward (see the lifecycle figure to the right); -- Intellectual property rights have to protect the inventing individual and his or her company so that the invention can "pay for itself;" -- Innovation can be considered a strategic advantage that states or entire countries simulate by lowering the barriers to foundational research (grants) and to business launch (as in the small business innovative research programs- SBIR). -- Sometimes, getting innovation to serve larger societal needs (e.g. environmental remediation) requires government (national or international) to replace missing free market forces. What company would lower its own greenhouse gas emissions unless stimulated to do so?

The 10 Immutable Laws of Nanoeconomics

Each of these laws may be prefaced with the phrase: as the visibility of the social graph tends to 100%. So these laws are in a sense asymptotic, evolutionary laws. Remember, we are talking about increasing perfectness of information, not perfect information. Even if the global visibility of the social graph does reach 100% (i.e. every one of the 6 billion people on the planet gets on Facebook) we won’t be at perfect information. And by the way, I define 100% social graph visibility as “anyone can find out as much about anybody else that the other person wants them to know.”

As the visibility of the social graph tends to 100%…

  1. The median size of a corporation in the economy tends to 1
  2. Transaction costs — search, negotiation and monitoring costs — drop to 0
  3. The median size of transactions tends to the smallest defined unit (1 cent in the United States). Evidence: consider the amount of money flowing through the economy in penny-sized amounts through Google AdSense/AdWords.
  4. All forms of capital are unified in monetary capital, i.e. the money economy accurately captures and values social, relational and environmental capital as well. The money economy becomes the “real” economy.
  5. The economic survivability of an agent becomes directly proportionate to his/her accumulated relational capital in the social graph
  6. An agent will become a free agent when his/her accumulated relational capital exceeds the total capital he/she can access via affiliation with any firm. Complex idea, think about it.
  7. The society of firms tends to its evolutionary end state of a democracy of firms. Traditional economics implicitly assumes that the social contract as it applies to firms is weak enough that the result is only slightly removed from an anarchic state-of-nature political arrangement among firms, even if the underlying social graph is democratic. This is why individual human citizens of democracies suspect that the influence of corporations on governance works in fundamentally undemocratic ways. Note though, that this influence is legitimate in a consent of the governed sense. Corporations (unlike organized crime syndicates) are legal entities similar to human citizens, in that they have rights in return for the abilities they give up via the social contract. In theory, the CEOs of today are supposed to be more principled than the Robber Barons of 100 years ago. These rights will eventually include the equivalent of legitimized voting rights in place of the ad hoc lobbying structures of today.
  8. The society of nations tends to its evolutionary end state of a global inter-national democracy (note the hyphen). All comments made for the democracy of firms within a nation apply, mutatis mutandis. I don’t know how to analyze multi-national corporations, let alone the hybrid mish-mash of intra-national corporations, multi-national corporations and nations.
  9. The value-at-commoditization of all matured products and services tends to zero, and the organization of production of these economic goods switches to purely cooperative forms of organization of labor (including industry-standard bodies, open source and government-monopolized). Not that maturation may happen instantly at launch for many categories (the point of Chris Anderson’s Free arguments).
  10. All products and services within the competitive economy (pre-commoditization) derive all their (non-zero) market value from either data, or fashion. This principle is suggested by the idea that data (e.g. Google’s data from search behavior or Amazon’s data fueling its recommendation engine) is the only sustainable competitive advantage. I add fashion because that is the other true differentiator: purely arbitrary aesthetic elements of economic value.

The UAlbany CNSE is the first college dedicated to research, development, education, and deployment in nanoeconomics.