Interdisciplinary Collaboration and Multiple Methods

Public Choice and Disruptive Research

Over the past year I have had the honor of serving as the President of the Public Choice Society, and on Sunday I returned from the annual conference. Public choice is the use of economic theory to analyze situations of non-market decision-making, and since its origins in the 1950s has focused on political decision-making and institutional frameworks (voting/social choice, legislative decision-making, logrolling), special interest influence in politics (lobbying, interest coalition formation, regulatory capture), and other forms of decision-making in settings where prices do not exist to coordinate decisions, such as community self-governance of the use of common-pool resources. In almost all of these topics the core problem is a collective action problem, in which individual incentives and what's best overall for the group (however the group is defined in these different settings) are misaligned. Public choice rests on three fundamental premises – methodological individualism, behavioral symmetry (model people as people), and politics as exchange, as I discussed last year about this same time in a post about public choice

People are People: Public Choice and the Logic of Collective Action

Two other distinguishing features of public choice are that it's an inherently interdisciplinary field of research, and has been since its origins, and that it encourages research that employs multiple methods (formal theory, narrative, experimental, econometric), in contrast to what I would argue is the methodological hegemony that dominates economic research.

My presidential address on Saturday highlighted the value of interdisciplinary research using multiple methods, despite the difficulty of actually pulling it off in the modern university with all of its collective action problems. Below is a transcript of my speaking notes from the speech.

In January 2023, Nature magazine published a new article indicating that scientific research had become more narrow, and that while both the quantity and quality of research has increased, the nature of research has changed: less of it is disruptive. The authors document a move away from disruption toward consolidation-focused research. They attribute this move to increasing field specialization and less exploration of the interstitial areas between fields that have different methods and modes of inquiry.

In summary, we report a marked decline in disruptive science and technology over time. ... We attribute this trend in part to scientists’ and inventors’ reliance on a narrower set of existing knowledge. ... Relying on narrower slices of knowledge benefits individual careers, but not scientific progress more generally.

(Park, Leahey, and Funk 2023, pp. 142-143; emphasis added)

As public choice scholars, we know a collective action problem when we see it.

This result is consistent with methodological changes and data science in empirical economics and political science in the past two decades, which enable us to derive more precise results but about narrower questions.

One implication of this research stands out, particularly for public choice scholars. To produce disruptive, creative, and original research, they argue that scholars should read more widely and have the institutional incentives to work and publish outside of these "narrower slices of knowledge". Work in interstitial areas, areas of overlap among multiple fields where researchers from different fields bring together their different literatures, frames of reference, questions of interest, and methodologies to grapple with important research questions. Creative and imaginative interdisciplinary collaborations create new and meaningful knowledge.

Elinor Ostrom and James Buchanan. Source: Peter Boettke

This result reflects an approach to knowledge and knowledge creation that is foundational to public choice. This society was formed as an association among economists and political scientists to foster collaboration in exploring a range of questions in non-market decision-making using multiple and diverse approaches. The range of questions has broadened over time, as have the methods, incorporating innovations like game theory and experimental economics as well as more recent econometric and data science methods. Public choice also interacts with fields like economic history, historical political economy, intellectual history, labor economics, transaction cost economics, and law and economics. Each one of us has a "home department", typically economics, political science, law, management, or public policy. But we learn from other fields and that enables us to think more deeply, broadly, and creatively about questions that have the potential to produce more disruptive research. Past President David Skarbek's research on prison gangs is a fantastic example, as is the work of John Aldrich, who will be President-Elect this coming year -- Professor Aldrich is an example of someone who is deeply in Political Science, who has become a student of institutions and political economy. This Society is replete with such fruitful approaches to scholarship.

We also are well-positioned to generate such creative research because public choice encourages the use of multiple methods, so well-used and well-articulated by Elinor Ostrom. This interdisciplinary, multiple methods approach positions public choice scholars well to grapple with the institutional and economic complexity of human social phenomena.

Given my reputation as an avid field researcher, colleagues often ask why I ‘bother’ with conducting experiments. They ask questions such as ‘Why would you pay any attention to outcomes in an experiment?’ and ‘What more can you possibly learn about institutions and resource governance from laboratory experiments that you have not already learned in the field?’

My first response is that we should learn more from multiple research methods applied to the same question than from a single method. Further, experimental research enables one to test the impact of specific variables in repeated controlled settings, something that is never available to a scholar studying field settings. One gains external validity in doing field research and internal validity in the laboratory. When a researcher can use both methods related to one theoretical set of questions, the scientific community can have more confidence in the results.

Elinor Ostrom, (2006) The value-added of laboratory experiments for the study of institutions and common-pool resources, Journal of Economic Behavior & Organization, 61:2, p.149.

This approach to research is important for using public choice theory to analyze many topics, including innovation and new technology adoption, particularly at the intersection of government regulation and technological change. We have presentations here on various topics in the political economy of innovation, including governance arrangements in AI and in new blockchain-enabled organizations. This is an area ripe for interdisciplinary, multiple methods research.

My own work is also an example. The electricity industry, one of the most heavily regulated industries, is currently experiencing an influx of innovation due to technological changes in all parts of the vertical supply chain: in generation technologies, in wires transmission and distribution technologies for transportation and coordination, and in consumption and production of electricity around the edge of the distribution network, around the grid edge. These innovations, represented in green in the graphic above, fit into two general categories: distributed energy resources (like wind and solar generation, batteries, electric vehicles, even geothermal and small modular nuclear reactors that are not yet mature enough to be commercially viable), and digitization that enables more precise and automated monitoring and control of an ever-wider array of heterogeneous types of producing and consuming devices that are interconnected via a wires network. That network has to be in full supply-demand balance 100 percent of the time, so these digital technologies enable more extensive and more accessible flexibility of both supply and demand devices.

Think about the political economy of this kind of disruptive innovation in a closely-regulated utility industry. Since the early 20th century (at least in the US), this industry has largely comprised vertically-integrated firms with a regulatorily-protected monopoly over the market in a specific spatial area. The flip side of that regulatory coin is a specific formula for how the regulated firm earns profit: rate-of-return regulation, where the firm earns revenue based on recovering their costs and on earning a guaranteed rate of return on their assets (known as the rate base).

Even in a static setting, in the absence of technological change, these firms have an incentive to invest in more capital to increase their revenue (the Averch-Johnson effect). But in a dynamic setting with economic and technological change, they exercise their considerable political influence to maintain the financial status quo (a 9-11 percent ROI on their capital assets) and to ensure that those regulatory entry barriers remain strong. The decentralizing forces of digitization and the distributed nature of the DER technologies create qualitatively different ways of organizing this industry and providing value propositions to consumers, ways that threaten the incumbent regulated business model.

Changing policy objectives also shape this complex environment. For the 20th century the policy objectives were for electric service to be safe, affordable, and reliable. The 21st century has seen a change to include resilient, decarbonized, and just/equitable as three additional policy objectives, each on its own worthy of a solid public choice analysis. Regulated utilities claim that they are the best positioned to accomplish these objectives (but only if they retain their monopoly status over the whole VI supply chain and continue to earn their 9-11 percent ROI).

Innovation that enables decentralization is creating alternatives to the status quo incumbent vertically-integrated monopoly. Digitization reduces transaction costs and makes vertical unbundling more feasible and economical, and the form that takes in electricity is enabling competitive wholesale power markets and retail competition, even though for now the wires network retains the economies of scale and scope that characterize a natural monopoly. Much of that has to do with the physics of alternating current electricity.

The transactive energy research in which my co-authors and I collaborate is creating an approach that can provide this decentralization, or it can also be used by traditional utilities to achieve these six policy objectives. It's also an example of interdisciplinary research using multiple methods. I won't go into detail since it would repeat much of my plenary talk in 2022, but will provide a quick sketch of the design.

Suppose we all have thermostats connected to a digital communications network, and through that to a local energy market. Our thermostat settings are programmed with our preferences, which they can turn into a bid/willingness to pay into that market. Transactive energy harnesses digitization to automate your response to price signals based on your own preferences, bidding into an experimental-economics-style double auction. Now imagine that some of us in this local energy market have EVs, so we can charge when the price is low and discharge to sell out of our batteries when the price is high and the car is parked for a while.

From an economics perspective, transactive energy uses markets to enable price discovery in a system that would benefit from the flexibility that markets and automation provide. From an engineering perspective, transactive energy uses this emergent price as a device control signal, substituting decentralized price-based coordination for centralized engineering control. From a transaction cost economics perspective, this design enables more competition at the retail level by enabling product differentiation (electricity as a service) and risk management for the retailer, which means that retail can be unbundled from the regulated monopoly. That unbundling means that the regulated utility becomes a wires-only company. From a political economy perspective, the regulated firm will object to such unbundling when it reduces the amount of capital that it can purchase and deploy. This political economy dilemma is where we are in 2024, but the Schumpeterian perennial gale of creative destruction will be present here, as always.

This disruptive research has several features that fit with the Nature article's framing. It's actually both consolidating and disruptive, because it uses existing and new ideas in experimental economics and mechanism design in conjunction with power systems engineering, systems theory, and computer science. My long-time co-author is an engineer and applied mathematician, and we work with a group of engineers, as well as with experimental economist Rim Baltaduonis, who is here today. The effort that goes into communicating and designing across our different fields has improved the ideas at both a theoretical and applied level. Our guiding principle is that creative and imaginative interdisciplinary collaborations create new and meaningful knowledge.

Where's the public choice in here, you may ask. Transactive energy was the foundational institutional design underlying "From Airbnb to Solar", the 2022 Public Choice article on how digital innovation enables a more polycentric institutional framework, that I wrote with Mike Munger and Alex Theisen.

Public choice also shows up in the more applied, translational approach that I take to communicating with regulators and other policymakers, who are generally risk averse and reinforce the status quo bias of regulated utilities. Making sure that regulators and policymakers have sources of information about innovation other than regulated utilities reduces, but does not eliminate, the likelihood of regulatory capture. I use public choice thinking to create education and translational research for practitioners, putting theory into action. It's one of the Five Prisms of the Institute for Regulatory Law & Economics' workshop for public utility commissioners and staff, providing them with foundational economic principles to make better regulatory decisions in the face of dynamic technological change.

In modern academia, though, this kind of creative interdisciplinary work can be challenging. As public choice scholars we are, of course, institutionalists, so let's close by turning our analytical gaze to governance and incentives in the modern university. The specialization and professionalization of academic fields over the 20th century created benefits of the type we would typically expect from specialization. But it also created a governance challenge as incentives for publication focused more on particular field-specific journals. For many of us, publications in more interdisciplinary journals "don't count" as much toward promotion and tenure, which dilutes incentives to do that work on those questions in those collaborations.

And yet universities are well aware of the value of interdisciplinary research to create new knowledge about meaningful questions. One current trend is the "cluster hire", designating a particular faculty appointment as a joint appointment across multiple departments. The National Science Foundation and other grantors require interdisciplinary collaboration in certain programs, engineering for example. But the departmental incentives to work within a "narrow slice of knowledge" are hard to overcome.

How, then, to create a career doing meaningful, interdisciplinary research with these misaligned incentives? How to adapt to the changing university landscape? 

All the incentives can push strongly against such work, especially for junior scholars. Striking a balance that satisfies your home department and yet involves intellectually disruptive projects is challenging. Yet many people in this room have made that strategy work, and you can, too! 

My own path has been unconventional, and it has sometimes put the tensions I have talked about here in sharp relief. But that path has also freed me to challenge the status quo in ways that have been intellectually fulfilling, and substantively meaningful. I want to call on young scholars to consider unconventional paths, and call on my senior colleagues to take leadership roles in paving those paths. Even marginal institutional changes can make space for interdisciplinary, multi-method contributions to "count" in academics, matching the ways that such contributions already count in the real world of policy debate and implementation.

Thank you all for your valuable work and for being a member of this creative, interdisciplinary scholarly community.