Leviticus 25:9
Once every 50 years comes the great day of the Jubilee, the day when all debts are forgiven.
For this special year and for the first time, the latest cryptographic technology can be used to obtain better debt jubilees.
Hallelujah!
Rembrandt — Moses Breaking the Tablets of the Law
לֹא, תִּגְנֹבוּ; וְלֹא‑תְכַחֲשׁוּ וְלֹא‑תְשַׁקְּרוּ, אִישׁ בַּעֲמִיתוֹ
Lev. 19:11
As the human mind is inscrutable to others, so its elucubrations are the truly purest form of property. Raziel protects your secrets from the Adversary and provides proofs against its malicious machinations: you shall not be robbed neither of your data nor of your code, for they are your inalienable property.
Hallelujah!
Imagine devising a set of rules for a game such that the dominant strategy of every player is to truthfully reveal their valuations and/or strategies: this is just one of the ambitious goals of mechanism design, the science of rule-making and the most useful branch of game theory. Fifteen years ago, a pioneering paper of Nisam and Ronen (Algorithmic Mechanism Design) merged it with computer science by including the requisite that computations should also be reasonably tractable for every involved player: this created a fruitful field of research that contributed every tool of algorithmics and computational complexity, from combinatorial optimization and linear programming to approximation algorithms and complexity classes.
In practice, Algorithmic Mechanism Design is also behind the successes of the modern Internet economy: every ad-auctions uses it results, like Google’s DoubleClick auctions or Yahoo’s Auctions, and peer-to-peer networks and network protocols are being designed under its guiding principles. It has also contributed to spectrum auctions and matching markets (kidneys, school choice systems and medical positions) and it has also generated interesting models, like the first one that justifies the optimality of the fee-setting structure of real estate agents, stock brokers and auction houses (see Fee Setting Intermediaries).
Up until a decade ago, the only way to learn this fascinating field of research was by venturing to read papers dispersed between the areas of economics, game theory and computer science, but this changed in 2008 with the publication of the basic textbook of the field, [amazon_link id=“0521872820” target=“_blank” ]Algorithmic Game Theory[/amazon_link], also available online:
Now a bit dated, it has recently been complemented with some great resources:
And that’s enough to begin with: hundred of hours of learning insightful research with fantastic applications!
I’ve just ended these three books published this year on the intersection of finance and programming:
Why did software component reuse never take root? Why is outsourcing within the software industry such a bad practice, even if other industries outsource all of their developments? Why do big software companies perform so bad and have such a poor innovation record?
From a purely financial viewpoint, focused on profitability ratios, these and other questions are far beyond all comprehension. But paradoxically, they emerge as the result of the blind application of financial theory to the software industry:
And there are many more examples: striving for a better ROCE (Return on Capital Employed) on software projects is not a very good idea, since capital is not a scarce resource, qualified labour is; so economizing on an abundant asset is absolutely wrong. And that for any other return-like ratio: they will strip off any software company and deprive it of its most precious assets.
No matter how hard times could get: in hindsight, everything is forgotten and hope replaces every glimpse of prudent rationality. But reading some carefully selected books is the perfect antidote to get back some good’n’old common sense:
As a follow-up to my previous post on software Disasters at Japan’s Fukushima Daiichi and Chernobyl nuclear power facilities , this very interesting and recent survey on the economics of patents:
Holding a contrarian view could carry out great benefits: there has always been a need for a procedure to protect any innovative software from reverse engineering that at the same time allows for its appropriation and exclusionary use, as well as it precludes any imitation of its functionality, implementation details aside. This procedure really exists, it’s the proverbial patent: a negative right, temporal and exclusionary, to protect any novel intellectual property in exchange of publishing enough information to replicate it. In some sense, it’s the only open window for the ordinary citizen to introduce its own personal legislation, a strong general purpose tool, however double-edged it may be.
The frontal and so popular opposition to software patents transcends the software world: indeed it can be found in past centuries and for other technologies; for example, the most cited case, and therefore so full of hyperbole, is the decades-long delayed adoption of the vapour machine due to the machiavellic use of the rights conferred by one of its patents.
Regarding current practices, a detailed study of the descriptive statistics of the use of software patents shows that they have been the fastest growing category for decades, though software companies have not been granted many of them because the biggest appliers are other industries similarly intensive in their use of IT capital but also with a strong record of filing for strategic patents. Note also that in the absence of strong patents rights, custom and common sense have required the use of copyright protection (which also does not need to give up any source code) even if it’s a far weaker protection: in fact, both of them are complimentary, but their actual use is substitutive, because whenever one of them is weakened, the other gets used much more.
From a purely economic point of view, studies show a statistically significant increase of the stock value of the software patent-owning companies and they happen to be a mandatory prerequisite to enter markets in which the incumbents already own strongly interdependent patent portfolios. And contrary to general opinion and practice, their use in software start-ups is, overall, positive: they increase the number of rounds and their amount, as well as survival and valuation in case of acquisition. From a strategic point of view, software patents raise barriers to entry acting as a deterrent mechanism to the kind of competition that just follow profits without investing in any kind of sunk costs in the search of technological advances: in short, an increase of 10% in the number of patents entails a reduction in competition between 3 and 8 per cent. And even if their valuation is a very complex matter, the intrinsic value of software patents is higher than that of the rest of patents.
In practice, the biggest burden in their granting and defence is the search of prior art: that is, even under the assumption that the inventor is operating under the principles of good will and full coöperation, he can’t get access to the full prior art because most software is developed internally for companies and never sees the public light. This gives rise to a great number of non-innovative and trivial patents, and others that ignore the prior art on purpose, a matter which sometimes can be difficult to settle (vg. Apple Multi-touch, Amazon 1‑click). Fortunately, malicious uses don’t fare well in the Courts of Justice: the strategies of the so-called patent trolls aren’t successfully long-term, that is, those who are operating within the letter of the law but against its spirit, and are using the patent system to extract rents from others that are using them for productive purposes, a problem that carries a very high economic cost. Only their fair use brings a true premium to business valuations, that is, building a good patent portfolio that does not enter into practices of dubious ethics like filing for patents that only pursue the cross licensing with competitors to avoid paying them for their intellectual property.
The fastest way to begin to learn how to write software patents is to start with this set of documents. And since real learning only happens from the best sources, there are lots of noteworthy software patents, examples to follow for their high degree of inventiveness and the business volume that they backed and helped generate:
As a follow-up to my previous post about mobile subsidies, it’s important to note that new IFRS financial accounting rules affecting them are under discussion (IAS 18: Revenue in Relation to Bundled Sales), even though they are not expected to come by 2015. Traditionally, mobile revenue per month is recognised for the whole bundled mobile contract, the cost of the handset is expensed on the first day of the contract and the initial subsidised payment, if any, is reported; under the forthcoming accounting proposals, these subsidised contracts would be effectively unbundled and interests would be taken into consideration. That is, a receivable for the unsubsidised fair value of the terminal would be recognised on the first day and every monthly instalment per month would be proportionally split into two parts: a fraction to settle the terminal receivables with their corresponding income from interests, the handset being recognised at inception of the contract, and the rest will be booked as revenue for the services.
These changes will provide a much more faithful view of the real nature of the current mobile business model: handsets are just not marketing expenses but integral to the whole mobile experience, therefore their costs won’t be diffused with other charges and profits and revenue will stop being misstated. But on the other hand, the new approach is more imprudent and the treatment of the breach of mobile contracts will further introduce unnecessary complexity.