The Competitiveness of Nations in a Global Knowledge-Based Economy
Paul A. David *
Common Agency Contracting and the Emergence of “Open
Science” Institutions
American Economic Review, 88
(2)
May 1998, 15-21.
Content
I. The Problem: Why “Open Science”?
II. The Argument: Noble Patrons, Mathematicians, and Principal-Agent
Problems
III. Common Agency Contracting, with Rival Principals - The Legacy of
European Feudalism
The Cold War’s ending has
brought mounting pressures to recognize national science and technology
research systems. Yet, by comparison
with what has been learned already concerning institutional arrangements and
business strategies affecting corporate R&D investments, surprisingly
little is known about the economic origins and effects of the corresponding institutional
infrastructures shaping the world of “academic” science, and the organization
and conduct of publicly supported R&D more generally. The desirability of closing this particular
lacuna in the economics and economic-history literatures has been just as
evident to economists concerned with extending the analysis of modern institutions
as to those who have begun to approach the whole area of science and technology
studies from the perspectives and methods of industrial-organization economics.
[1] Even before the “new economics of science” had begun to
direct attention to such a program, Douglass North (1990 p. 75) saw a significant challenge
and a promising opportunity in explicit exploration of “the connecting links
between institutional structures... and incentives to acquire pure knowledge.” The research reported here has accepted that
challenge (see also the other papers in this session: Timothy Lenoir [1998], Christophe Lécuyer [1998], and
Marjory S. Blumenthal [1998]). It is focused
upon key episodes in the institutional evolution of “public science,” and its
complex and changing relationship to the other organizational spheres of
contemporaneous scientific activity: those in which research was conducted under
“proprietary rules” for industrial profit-goals, and “defense-related” science
and engineering knowledge was sought under conditions of restricted access to
information concerning methods, findings, and their actual and potential
applications.
I. The Problem: Why “Open Science”?
The particular historical
development of interest here is the emergence of precisely those fundamental
lines of cultural and institutional demarcation, to which I have referred in
distinguishing the existence of the sphere of “open science” activities
supported by state funding and the patronage of private foundations and carried
on today in universities and public (not-for-profit) institutes. Although the conceptualization of science as
the pursuit of “public knowledge” now seems to many a natural, even a primitive
notion, it is in reality a complex social construct (see Robert K. Merton 1973,
1996 part III). The “communal” ethos and
norms of “the Republic of Science” emphasize the cooperative character of the
larger purpose in which individual researchers are engaged, stressing that the
Discussants: Kenneth Flamm,
Brookings Institution; Zvi Griliches,
Harvard University; David Mowery, University of California-Berkeley.
* All Souls College, Oxford OX1 4AL,
U.K., and Department of Economics, Stanford University, Stanford, CA
94305-6072. This condensed presentation draws on David
(1998), which should be consulted for refinements, qualifications, historical
documentation, and references to the relevant literature. I am grateful to Avner
Greif, Mario Biagioli, Partha Dasgupta, Weston Headley,
Scott Mandelbrote, Joel Mokyr,
Noel Swerdlow, and many other colleagues, institutions,
and foundations whose intellectual and material generosity aided my research in
this area since 1991. The comments and
suggestions of the discussants improved the present version, although they did
not make the task of compression any the easier.
1. With particular reference to “the new economics of science,” see Partha Dasgupta and David (1987,
1994), David (1994a), and the more recent surveys by A. M. Diamond (1996),
Paula Stephan (1996), and David et al. (1998).
accumulation of reliable knowledge is an essentially social
process. The force of its universalist norm is to render
entry into scientific work and discourse open to all persons of “competence,”
while a second key aspect of “openness” is promoted by norms concerning the
sharing of knowledge in regard to new findings and the methods whereby they
were obtained.
Open science is a quite
recent social innovation, at least by historical standards. Accompanying the profound epistemological
reorientation wrought by the fusion of experimentalism with Renaissance
mathematics, the cultural ethos and social organization of Western European
scientific activities during the late 16th and 17th centuries underwent a significant
transformation, a break from the previously dominant regime of “secrecy in the
pursuit of nature’s secrets.” This
change should be seen as a distinctive and vital aspect of the Scientific
Revolution, from which there crystallized a new set of conventions, incentive
structures, and institutional mechanisms that reinforced scientific
researchers’ commitments to rapid disclosure and wider dissemination of their
discoveries and inventions. Yet the
puzzle of why and how this came about has not received the notice it would seem
to deserve, especially in view of the complementarities and tensions that are
present today in relations between the regimes of open and proprietary science.
Any familiarity with the
antecedent intellectual orientation and social organization of scientific
research in the West would be sufficient to suggest the utter improbability of
that historical bifurcation, which saw a new and quite antithetical mode of
conducting the search for knowledge emerge alongside (and in some sense in
competition with) the older, secretive hunting of nature’s secrets. Medieval experimental science was shaped by a
political and religious outlook that encouraged withholding from the “vulgar
multitude” arcane and occult knowledge that might impart immense powers over
material things (see William Eamon, 1994). The imperative of secrecy was particularly
strong in the medieval and Renaissance traditions of alchemy, and it persisted
there side-by-side with the emergent institutions of open science throughout
the 17th and into the 18th century. Social
and economic regulations during the Middle Ages, along
with rent-seeking strategies, worked in the same direction: knowledge of
recently discovered geographical secrets and maps indicating trade routes would
be closely guarded. Similarly,
technological recipes were kept from the public domain by craftsmen, even when
they were not compelled by guild restrictions to preserve the “mysteries” of
the industrial arts. [2]
Why then, out of such a
background should there have emerged a quite distinctive community of inquiry
whose members came to be governed by a distinctive reward system based upon
priority (and hence, necessarily, the revelation) of discoveries? Why, especially when in the modern context we
see few if any differences between the methods of (scientific) inquiry used by
university researchers working under the institutional norms of open science
and the procedures that they (or others with the same training) employ in the
setting of a corporate R&D laboratory? Can the social organization of open science
then be simply an epiphenomenon of the philosophical and religious changes that
some cultural historians see as underpinning the Scientific Revolution, if not
of the epistemological transformations that it constituted? Stating the problem more synthetically, is it
not plausible that these two discontinuities, the one taking place in the social
organization of scientific inquiry and the other transforming its intellectual
organization, were interdependent and entangled with each other in ways that
need to be more thoroughly understood?
Considering the economic
logic of the organization of knowledge-producing activities provides a start
toward answering this question; it is possible to give a complete functionalist
account of the institutional complex that
2. From the 14th century to the early 18th century in Europe, the
issuance of “letters patent” and granting of royal “privileges” conferring
monopoly rights in exchange for the disclosure of technological information
were aimed primarily to effect the transfer and application of existing
industrial arts and engineering practices (i.e., techniques already known to
master-craftsmen and engineers in other territories), and not particularly at
inducing fresh inventive activity (see David, 1993a).
16
characterizes modern science in such terms (see Dasgupta
and David, 1987, 1994). In brief, the
norm of openness is incentive-compatible with a collegiate reputational
reward system based upon accepted claims to priority; it also is conducive to
individual strategy choices whose collective outcome reduces excess duplication
of research efforts and enlarges the domain of informational complementaries. This brings socially beneficial spillovers
among research programs and abets rapid replication and swift validation of
novel discoveries. The advantages of
treating new findings as public goods in order to promote the faster growth of
the stock of knowledge are thus contrasted with the requirement of restricting
informational access in order to enlarge the flow of privately appropriable
rents from knowledge stocks. This
functionalist juxtaposition suggests a logical basis for the existence and
perpetuation of institutional and cultural separations between two normatively
differentiated communities of research practice: the open “Republic of Science”
and the proprietary “Realm of Technology” are distinctive organizational
regimes, each of which serves a different (and potentially complementary)
societal purpose.
The foregoing,
“logical-origins” style of explanation for the institutions of modern science
(and technology), however, is unconcerned with the details of their actual
historical evolution. A rationale of
this kind, at best, seems to presuppose a creationist fiction, namely, that
these arrangements were instituted ab initio
by some external agency, such as an informed and benevolent political authority
endowed with fiscal powers. A response
to that objection requires probing for the historical origins of the
institutions of open science, since these remain outside the set of logical
origins arrived at simply from a consideration of the present-day functional
value of an extant, cooperative mode of scientific research.
II.
The Argument: Noble Patrons, Mathematicians, and
Principal-Agent Problems
I contend that the
historical emergence of the norms of disclosure and demonstration and the rise
of “cooperative rivalries” in the revelation of new knowledge (the
“open-science revolution”) had independent and antecedent roots. These lay in the social and institutional
contexts in which the new breed of scientists were working: the formation of a
distinctive research culture of open science was first made possible and,
indeed, was positively encouraged by the system of aristocratic patronage
prevailing in an era when kings and nobles (both lay and ecclesiastical) were
immediately concerned with the ornamental benefits to be derived by their
sponsorship of philosophers and savants of great renown. To sustain this interpretation I argue that
the economic logic of the patronage system in post-Renaissance Europe induced
the emergence and promoted the institutionalization of new reputation-building
proceedings; these entailed the revelation of scientific knowledge and
expertise among extended reference groups that included “peer-experts.” Patronage, however, already was an old system
in the 17th century, for the sponsorship of intellectuals was a longstanding
prerogative and responsibility of Europe’s social and political elites. It is necessary then for me to explain that
something new had appeared on the scene at that particular juncture; something
which by disturbing that system induced the primitive formation of conventions
and norms that can be identified with open science. The core part of my proposed explanation
derives from considering, first, the economics of patronage in general, and
then the specific implications of the newly arising problems of principal-agent
contracting that were created by the late-Renaissance patronage system’s
encounter with the new (mathematical) form of “mechanical philosophy,” in which
the likes of Galileo, Johannes Kepler, and their
contemporaries came to be engaged.
Aristocratic patronage
systems historically reflected two kinds of motivation: the utilitarian and
the ornamental. Most political
elites, in addition to recognizing some need in their domain for men capable of
producing new ideas and inventions to solve mundane but nonetheless important
problems, also have sought to enlist the services of those who profess an
ability to reveal the secrets of Nature, and of Destiny. Kings, princes, and lesser nobles sought to
surround themselves with
creative talents whose achievements would enhance their self-esteem
and their public image. Thus, poets,
artists, musicians, chroniclers, architects, instrument-makers, and natural
philosophers found employment and protection in aristocratic courts, both
because their skills might serve the necessities and pleasures of the court and
because their presence “made a statement” in the quest among nobles for
prestige. Patron-client relations often
were precarious, being uncomfortably subject to the volatility of aristocratic
tastes and moods, and to the abrupt terminations that might ensue on a patron’s
disgrace or demise. Nonetheless, these
dyadic connections existed in this era as part of a well-articulated system
characterized by elaborate conventions and rituals that provided calculable
career paths for men of intellectual and artistic talents (see Bruce Moran,
1991; Mario Biagioli, 1993).
Those motives for extending
patronage as symbolic acts of public self-aggrandizement are here subsumed
under the heading “ornamental.” Such
reasons should be understood to have been no less instrumental in their nature
and roots than were the utilitarian grounds for the patronage of intellectuals.
Grandeur and ostentatious display could
serve to reinforce the claim of a prince to rightful possession of authority;
the public display of “magnificence,” in which art and power were closely
allied, was a stock item in the repertoire of Renaissance state-craft (see Roy
Strong, 1984). This is significant,
because inventions and discoveries that met utilitarian needs in many instances
would have to be kept secret if they were to be most useful, whereas it is in
the nature of the ornamental motive for the patronage of creative talent that
its fulfillment elicits the disclosure of new, marvelous discoveries and
productions - that the client’s achievement on behalf of the patron be widely publicized.
Indeed, it was very much in the interest
of a patron for the client’s reputation to be enhanced in this way, for the
fame of the latter augmented his own.
Into this setting a new
element had been interjected during the 16th century. The more extensive and rigorous use of
mathematical methods formed an increasingly important aspect of the work of
natural philosophers and others. [3]
A side-effect of
this intellectual advance was, however, to render the basis of the
mathematically sophisticated savants’ claims and reputations less immediately
accessible for evaluation by the elites in whose service they wished to be
employed. The difficulties thus posed by
the asymmetric distribution of information were rather unprecedented, not
having been encountered to the same degree in the patronage of intellectuals
and artists who followed other, less esoteric callings. The new breed of scientists, however, claimed
to specialize in revealing the unfamiliar.
Opportunities for charlatanry here were more rife, and so were the risks
of embarrassment for the patron, should it turn out that one had sponsored a
fraud - or much worse, a heretic. Thus,
even where the services of the mathematically trained intelligencia
might be sought for essentially practical, utilitarian pursuits (designing
machinery for public spectacles, surveying and cartography, ballistics, or the
correct use of perspective in pictorial arts), the soundness of the candidates’
qualifications had become more problematic and far from inconsequential.
This shift was tantamount
to the emergence of especially compelling reasons for noble patrons readily to
delegate more of the responsibility for evaluating and selecting among the new
breed of savants; those screening functions were thereby devolved initially to
informal networks of correspondents, and increasingly to more institutionalized
communities of their fellow practitioners and correspondents. Except for those few who were themselves adepts,
patrons were inclined to refrain from passing personal judgment on scientific assertions, or involving themselves in substantive
controversies (see Biagioli, 1993). It was left to the initiative of the parties dependent upon such patronage to organize the
production of credible testimonials to their own credibility and scientific
status. Not alto-
3. See C. B. Boyer (1985 Ch. 15) and Noel Swerdlow
(1993) on Renaissance mathematics; A. Keller (1985) on the program and rhetoric developed on behalf of
mathematical training during the 1570’s
and 1580’s; and M. Feingold (1984) and Biagioli
(1989, 1993) on the patronage of mathematicians.
18
gether surprisingly then, the beginning of the era of modern
mathematics also witnessed the formation of active networks of correspondence
among Europe’s algebrists and geometers, announcing
newly devised techniques and results; the mid-l6th century initiated the
tradition of publicly posing mathematical puzzles, issuing scientific
challenges, announcing prizes for the solutions of problems, and the holding of
open competitions to test the claims of rival experts in the mathematical arts.
On the interpretation proposed here, the
new practices of disclosure constituted a functional response to heightened
asymmetric-information problems that the mathematization
of natural philosophy and the practical arts posed for the Renaissance system
of court-patronage.
III.
Common Agency Contracting, with Rival Principals - The
Legacy of European Feudalism
The foregoing sketch of the
early modern court patronage system presents features recognizable to
economists as those of “common agency contracting,” involving the competition
of incompletely informed rival principals for the dedicated services of an
expert agent. Establishing
that correspondence suggests three significant propositions about the economic
organization of scientific activities in Europe during the late 16th and early
17th centuries.
First, since what the
scientist-clients had to offer their patrons was “novelty,” at any point in
time the welfare of a scientist’s several patrons could not be jointly advanced
by the same degree. In the early history
of modern science, as a consequence of the dominance of patrons who were
concerned with the ornamental rather than the utilitarian value of scientist-philosophers,
the services a client provided to his several patrons were more in the nature
of positional goods, and hence essentially were “substitutes” rather
than “complements.”
Second, in the majority of
cases, the material rewards offered to clients by any single patron were not
sufficiently large and certain to relieve them from the quest for multiple patrons.
But in the absence of full information
and concerted action on the part of principals, the nature of the incentive
contracts offered by the latter would have reflected their awareness of the
possibility that a client/agent could use the means provided by one patron to
serve the ends of another. Under these
common agency conditions the resulting Nash equilibrium in the game among rival
principals would be a set of patronage-contracts that offered clients
comparatively weak material incentives to devote their efforts exclusively to
the service of any one patron (see Avinash Dixit, 1996). Such
an outcome, of course, would be consistent with the necessity of seeking to
serve a number of patrons concurrently for “piecemeal compensation.” Even though a scientist such as Galileo might
deplore that situation as demeaning (Biagioli, 1993
p. 29), it worked nevertheless to reinforce would-be clients in their adoption
of research and publication strategies that widened the circle of their repute.
Third, as Lars Stole’s
(1990) analysis of mechanism design under common agency contracting has shown,
the equilibrium outcome in the case of “contract substitutes” is in general
more favorable to the agent than is the case when the services performed for
different principals are complements. In
effect, the competition among patrons to command the faithful attention of an
agent/client (when they cannot free-ride on the knowledge products delivered to
their rivals) leads to incentive structures that allow the client to retain
more of the “rents” from the specialized information he possesses. The situation therefore tended to provide
greater rewards for scientific activities than would have been the case otherwise, were there only a single possible patron on the
scene; or had the patrons predominantly enjoyed positive externalities from
others’ support of the agent’s efforts. The
latter, of course, is the characteristic situation when there are significant spillovers
of (utilitarian) benefits from new knowledge.
In the story related here
there is an historical irony well worth remarking upon, especially as it
underscores the tenacity of the past’s hold on the incrementally evolving
institutions that channel the course of economic change.
[4] Here
4. On “path dependence” in the dynamics of economic systems,
see, for example, David (1993b, 1994b, 1997).
is the nub of it: an essentially precapitalist,
European aristocratic disposition to engage in the patronage of intellectuals
of renown for ornamental motives came to confer value upon those who pursued
knowledge by following the new science in the late 16th and 17th centuries. The norms of cooperation and information disclosure
within the community of scientists, and their institutionalization through the
activities of formal scientific organizations, emerged (in part at least) as a
response to the informational requirements of a system of patronage in which
the competition among noble patrons for prestigious clients was crucial. Those rivalries were a legacy of western
European feudalism: the medieval fragmentation of political authority had set
the stage for common agency contracting in substitutes. An instructive contrast might be drawn
with the alternative circumstances of a monolithic political system, such as
had prevailed elsewhere, as in the Heavenly Empire of China during an earlier
epoch, to cite a well-known case of a society that clearly possessed the
intellectual talents for great scientific accomplishments, yet failed
spectacularly to institutionalize the practice of open science. Might one then see open science to have been
European feudalism’s great gift to the economic vigor of capitalism in the
modern age?
Some important part of the
impact of science today derives from the radical social innovation that the
open-science regime constituted. A
corollary proposition, to which the historical experience recounted here also
lends support, is that the methods of modern science in and of themselves were not and still are not sufficient to form the
unique cultural ethos associated with the “Republic of Science.” Nor can they be expected automatically to
induce and sustain the peculiar institutional infrastructures and
organizational conditions of the open-science regime, within which their application
has proved so conducive to the rapid growth of the stock of reliable public
knowledge and all that flows therefrom. Rather than being the robust epiphenomena of a
new organum of intellectual inquiry, the institutions
of open science are independent and in some measure fortuitous social and
political constructs; along with the cultural ethos they have served to
transmit from generation to generation, they are in reality intricate legacies
of European history.
Features of the
institutional infrastructure of public science, being thus in some significant
degree exogenous to actual scientific practice, may be subjected to substantial
redesign and otherwise manipulated as potent instruments of state science and
technology policies. In one sense that
is the good news. But it comes with a caution. While the norms of openness play a critical
part in maintaining the systemic efficacy of modern scientific research, they
are terribly vulnerable to the withdrawal of public-minded patronage and
protection. Wise policy-making in this
critically sensitive area must pay especial heed to the complex and contingent
histories of the organizations of public science and so respect the potential
fragility of the peculiar institutional matrix within which modern research
evolved and has flourished.
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