Economic Productivity

PIDAO is the first organization to explicitly realize and implement the idea that, in digital economy, internal coordination is more significant than price coordination. This is succinctly expressed in the (3, 3) versus (1, 1) game theory meme. In digital economy, the dynamics of internal coordination versus price coordination are the fundamental economic forces, as opposed to the older notions of supply versus demand (which only describe price coordination). In the older style of industrial production, price coordination (supply and demand) was the primary motivator for starting a business. One would start a business in order to profit from price inefficiencies. And from this primary motivation, would then organize internal coordination around the productive task. By contrast, in digital economy, internal coordination is the primary motivator, and only if internal coordination is significant enough, can price coordination come into the picture through network effects. The dynamics of internal coordination versus price coordination were first pointed out by Ronald Coase in his essay The Nature of the Firm (1937).

In the materials economy, what is being produced are tangible, finite supply goods. And in that context, price coordination determines the optimal distribution of those goods. But in digital economy, price coordination cannot determine the optimal distribution of what is being produced, because what is being produced are ideas, incentives, and infrastructures, which are not tangible or finite supply in the same way. Price is only one kind of idea, incentive, and infrastructure, and not necessarily the most predictive or determinate motivating factor. And therefore internal coordination is more important than price coordination in digital economy. It is only once a certain threshold of internal coordination is reached that the economic productivity of ideas is then externalized into price coordination.

The idea that internal coordination is more significant than price coordination is expressed very concisely in the (3, 3) meme. The (3, 3) is one outcome in a game theoretic payoff matrix that describes the incentive structure of PIDAO. The (3, 3) is a win-win situation in which both players stake their PID tokens; this is internal coordination. The (1, 1) payoff is also a win-win situation, to a lesser degree, which happens when a buyer purchases PID tokens from the protocol at a discount, and provides another asset (e.g. a stablecoin) to the protocol treasury in return; this is price coordination. The (3, 3) meme basically expresses the idea that internal coordination - universally agreed upon, positive sum, cooperative behavior - is more economically productive than price coordination - divisive, zero sum, competitive behavior. Price coordination (supply and demand) is still a win-win equilibrium, just to a lesser degree than the internal coordination equilibrium.

In order to have an adequate theory of economic productivity in digital economy, we must have a good description and explanation of internal coordination or (3, 3), and a good explanation of exactly why it is more significant than price coordination, (1, 1). In order to do this, we look at the history of economic theories of value. We show that value and productivity in digital economy, first fully realized and expressed in PIDAO, is a certain kind of synthesis of prior value theories.

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