The Exchange Commons

"While the conditions of production give some guidance to what factor groupings are desirable ceteris paribus, they do not determine the boundaries of a neoclassical firm (a legal entity with a residual claimant). Indeed, they could just as well be related to other groupings, such as geographical clusters like Silicon Valley. Our second paper, 'The Exchange Commons' by Jonathan Liebenau (London School of Economics) describes organizational systems such as property rights, residual claims, contracting, and governance that determine vertical integration. He treats these institutions as common pool resources. For example, when agents make a complex exchange, there is some organizational capital bundled in the exchange. That organizational capital is to a large degree nonrivalrous and nonexcludable, but as transactions become more numerous or more complex, the organizational capital can become 'congested' in the sense that overall quality diminishes. This is just like overgrazing of an agricultural commons. The way to fix this problem is to alter the excludability of the organizational capital by vertical integration."