Regular readers know that I've been exploring an extension of the traditional economic theory of the firm. Specifically, I've been exploring the following hypothesis:
A firm will emerge when a single team of people can synchronize the
flow of supply to demand at lower costs than two independent teams
relying on market price signals alone.
"Flow" here means a unit quantity of goods per unit time. You can read the original post, in which I place the hypothesis in the context of earlier work by Coase, Alchian & Demsetz, and Williamson, here.
To my surprise and joy, it turns out that there have been some discoveries in biology and neuroscience over the past few decades that have some very interesting affinities with the synchronized flow hypothesis. Specifically, relatively new work on mitochondria, neuroplasticity, mirror neurons, and collaborative memory seem to fit well with the theory of synchronized flow.
The Connection between Mitochondria and the Hypothesis of Periodicity
First, the synchronized flow hypothesis was inspired by the observation that human consumption and production occur in cycles with a measurable frequency distribution. Integrated up into cumulative distribution functions, these frequency distributions can be shown to be equivalent to aggregate supply and demand for a population within a window of time. Over the past few days, I've been reading Nick Lane's recent book about mitochondria (thanks to Tyler Cowen for the recommendation), and have discovered that, over a fairly wide range, a power law applies to the basal metabolic rate of mammals. In other words, some network topology is responsible for the periodicity in our metabolism. Since mitochondria are responsible for quite a bit of our metabolism, the hypothesis of biologists is that it is the network topology of mitochondria that determines the rhythms of metabolism, at least for mammals. In other words, our network of mitochondria provides a biological mechanism for explaining the hypothesis of periodicity.
Mitochondria and Neuroplasticity
As if that weren't enough, it appears that mitochondria are also responsible, at least to some extent, for neuroplasticity. See here for a description of the function of mitochondria within the brain. Neuroplasticity is the phenomenon whereby certain neural pathways are reinforced by experience. I started reading about neuroplasticity in this book by Norman Doidge, in which he describes (among other things) how blind people have been taught to see through the use of cameras hooked up to tactile feedback transducers.
Are you with me? So far we've got a biological mechanism for explaining why we observe particular rhythms of consumption and production, which happens to be related to the mechanism that permits us to learn by repetition.
Neuroplasticity and Mirror Neurons
Another result we've gotten recently from neuroscience is that there are certain neurons in the brain that will fire both when we do things and when we see another person do the same thing. If you pair that up with neuroplasticity and the mitochondria, what you've got is a mechanism for us to teach and learn from one-another, including a mechanism for indirectly influencing one-another's rhythms of consumption or production at a biological level.
Consider this: if I perform zen meditation in front of you, because of mirror neurons, your brain is going to start firing along similar pathways to the ones that my brain is firing along while I'm in meditation. The result is that you are going to be more likely to want to do zen meditation and in fact, you may get some of the benefits even just from watching me do it. Zen meditation, of course, is a pretty benign example of the power here. Investors should see immediately how much this means.
Collaborative Memory
Has anybody looked empirically to see whether any of this neurophysiology is borne out at the level of psychology -- much less at the level of economic hypotheses (such as rationality)? In fact, yes. Here is a summary of work done on "collaborative memory." The surprising results of this work are the following: certain cognitive tasks are negatively affected by collaboration, including group brainstorming for word-list retrieval.
In an earlier post, I explored a theory of why that might be, based on the results of other neuroscience research reported in Daniel Goleman's new book, Social Intelligence. My thought is that the synchronized flow theory can be explained on a neursocientific basis as the result of comparative institutional advantages in how and what information is communicated in order to synchronize supply and demand. In particular, the thought is that integration of firms will be favored when mirror neurons and plasticity will lead to better flow synchronization.
Obviously, this is all speculation at this point. But it's really fascinating stuff, and I couldn't help throwing it out there to see whether there was anybody else who would be similarly interested in it. I realize that the connection between these various steps is fairly tenuous. Yet lots of research has been done at each step. If you simply connect the dots, you've got a fairly solid biological explanation for why groups of people choose to work together on one set of tasks, but not another.
Recent Comments