Performativity, Complexity, and Framing in the FCC Spectrum Incentive Auction

Introduciton

I submitted a paper abstract to GRISTS 2024 and was accepted.

The paper is tentatively titled Performativity, Complexity, and Framing in the FCC Spectrum Incentive Auction. Here is the abstract:

Abstract: In this paper, I study the Federal Communication Commission’s 2016 Spectrum “Incentive Auction” which was developed in collaboration with academic “market design” economists to reallocate spectrum bandwidth from local cable television broadcasters to mobile broadband providers. I will analyze the role of economic experts in this process from the perspective of the “performativity” of economics (Mitchell 2007; Callon 1998; MacKenzie 2008), focusing especially on how experts helped achieve framing that was necessary for the auction to both proceed and be understood as a success (leading to a Nobel Prize for chief designer Paul Milgrom). I will especially focus on the construction and stabilization of the concept of “complexity” in rendering the auction, its particular form, and expert intervention more broadly, as necessary. I will explore how complexity was made, what are the stakes of its making, and why it was understood by policymakers and the public as relevant justification for this particular technocratic intervention.

The requirements for the presentation are:

Presenters are expected to give presentations of approximately 10-12 minutes. Ahead of the conference, we will ask for short (around 1,000 words) summary papers so that faculty panel chairs and other participants can prepare to engage with your work.

I wrote a first draft of this paper for an STS course a few years ago, but have a lot that I would like to improve about the work ahead of the presentation in a few weeks. Over the next few weeks, I am going to focus my daily morning creative practice on revising and updating this work.

In this post, I will document my progress. I find documentation is useful for externalization and for having a feeling of making progress on the work.

Reviewing References

October 30, 2024

While I have a rough draft already, I am starting by revisiting some of the key background references that I would like to engage in this work, so that I can re-immerse myself in the conversation.

There are three main buckets of references I want to engage:

STS references from the “performativity” of economics literature. The key references here are:
- A few pieces from Callon:
  - Callon, M. (1998a). Introduction: the embeddedness of economic markets in economics. The sociological review, 46(1_suppl), 1-57.
  - Callon, M. (1998b). An essay on framing and overflowing: economic externalities revisited by sociology. The sociological review, 46(1_suppl), 244-269.
- MacKenzie, D. (2008). Material markets: How economic agents are constructed. OUP Oxford.
- Do economists make markets? On the performativity of economics is a useful edited volume:
  - The introduction
  - Mitchell, T. (2007). The properties of markets.
- A few pieces from this literature that specifically discuss spectrum auctions:
  - Mirowski, P., & Nik-Khah, E. (2007). Markets made flesh (pp. 190-224). Do economists make markets? On the performativity of economics. Princeton, NJ: Princeton University Press.
  - Mirowski, P., & Nik-Khah, E. (2017). The knowledge we have lost in information: the history of information in modern economics. Oxford University Press.
  - Nik-Khah, E., & Mirowski, P. (2019). On going the market one better: economic market design and the contradictions of building markets for public purposes. Economy and Society, 48(2), 268-294.
Focal references from economists on the incentive auction. Namely:
- Milgrom, P. (2017). Discovering prices: auction design in markets with complex constraints. Columbia University Press.
- There are some others here too.
STS references from the Jasanofian co-production literature.

I am going to work through each of these and include my notes here. Let’s start with Callon, M. (1998a) since in my understanding this is the STS origin of the idea of performativity.

Callon (1998a): The Embeddedness of Economic Markets in Economics

October 30, 2024

I am going to start by reviewing this piece from Callon titled “The embeddedness of economic markets in economics”.

Callon starts by exploring this idea that economic theory is detached from the “reality” of the market on the ground – it is impoverished in its representations of economic actors. This is what Mitchell (2007) later calls the “sociological critique” of economics, which Callon here also references. Callon is interested in an alternative approach:

The point of view that I have adopted in this introduction, and which the book strives to defend … consists in maintaining that economics, in the broad sense of the term, performs, shapes and formats the economy, rather than observering how it functions.

One question this raises that I have been wanting to think about more is the question of how the performativity framing relates to the Jasanofian co-production frame, which I outlined my understanding of here.

Based on the above statement from Callon, I think that we can understand the performativity of economics as a particular type of co-production. For example, there is much in common between the above Callon quote with this general Jasanofian statement about the co-productionist lens:

the ways in which we know and represent the world … are inseparable from the ways in which we choose to live in it

My working hypothesis that it makes sense to think about performativity as a particular kind of co-production. What is being co-produced with what in this case?

Knowledge about economic agents and economic markets (and how they are constituted, what they are capable of, how they operate) is being co-produced with
Prescriptions about how economic agents and economic markets should work and behave – about what is necessary to make them “work well” or “be effective” etc.

However, I think that my thesis about the peformativity folks is that they leave under-theorized an important part of the story which is related to the question of why economic ideas are taken up by economic actors and economies, or the policymakers that control them. They attend to some parts of this: the materialities, the networks that hold economists’ frames in place. I analyzed some of this in my first draft. But left under-theorized is the question of why / how these frames are (understood as) necessary for economic actors. I.e. I am arguing that we should also pay attention to this deeper act of co-production where (pre-economic) agents are constituted as needing the help of something like a “framing” in the first place. This is the part of the argument (in the case of the FCC auction) that connects to the rendering of “complexity”.

To decide that something is complex is to make a fact about the world (i.e. the situation outside of the agents), but also about the agents themselves, and their ability to understand the world, and consequently to make something normative about what they require from policymakers etc. to handle this complexity.

In the case of the spectrum auction (and market design more broadly), the rendering of complexity also implies a particular configuration of economic experts in relation to policymakers. Their expertise is no longer transferrable; transition from economist as advisor to economist as engineer etc.

Milgrom (2017) - Discovering Prices: Auction Design in Markets with Complex Constraints

November 11, 2024

I have been slow engaging here, but the deadline is incoming. So today, I am going to spend some focal time. I am going to start by re-reading through the book from Milgrom which discusses the auction: Discovering Prices: Auction Design in Markets with Complex Constraints .

Centered around the idea of “market design”.

Interestingly, a big part of the narrative of this book is about addressing traditional economic theory.

… some economists schooled in traditional economic theory were skeptical of the field of market design altogether. Why, many asked, would markets need designing? Why can unregulated market participants not take care of themselves? According to a view that is still espoused by many economists, if resources are allocated in an inefficient way, and if parties can negotiate freely among themsleves without aritificially imposed constraints, then the parties will be sufficiently motivated to alleviate and eventually eliminate any important inefficiency without any outside assistance. According to that view, no organized market is needed to promote efficient trade

In other words, a big part of the book is about explaining why market design - this particular flavor of centralized expert intervention - is necessary in situations like this.

Why do conventional economists believe this?

Coase theorem
Invisible hand / first welfare theorem.

In short, there is a belief in the calculative efficiency of the free market. Standard economist stuff, valuing efficiency. Separation of efficiency and distribution. Not that you shouldn’t care about efficiency, but that it is separable from equity.

Milgrom re-hashes the kind of standard set of “exceptions” to this “free market” / first welfare theorem perspective. He calls these “real-world complications” that “upset” the conclusion of the first welfare theorem.

Standard ones that are “discussed at length in all elementary microeconomics textbooks”:

“Externalities”
“Market power” / imperfect competition.

But two more assumptions that receive “much less discussion in textbooks”:

The assumption that consumers and firms do not care which units they may receeive or supply of each product and consequently that the only relevant constraints on market transactions are that the quantity demanded must be equal to the quantity supplied.
- In short, assumption that products are homogenous.
- Why do they assume this?
  - If two items are different in an important way –> can be considered different products.
- But this can only be carried so far ==> if everything matters, then every supplier is a monopolist.
- “In reality, some details of time and place and even physical characteristics are always overlooked in defining a product category. As a consequence, some heterogeneity always remains”
  - Even when talking about commodities ==> this is exactly what STS performativity people are talking about.

In some applications, very fine differences among products within a category are critically important for serving demand.

Resource constraints: “for example, the statement that the supply of electricity is sufficient to meet demand”

I will call a resource constraint “simple” if, when people attempt to violate it, the only consequence is that some demand is left unserved.

Traditional economic analyses, which extoll the ability of price adjustments to correct imbalances of demand and supply, implicitly assume that all constraints are simple.

However, for some resource constraints, attempted violations can have less benign consequences.

When even temporary imbalances of supply and demand are intolerable, a system of prices alone is just not good enouogh: some other means of coordination is needed to ensure no imbalance.

Key point: key sources of complexity.

In this monograph, I recognize two kinds of complexity that often interact to make centralization of markets desirable and good market design valuable.

First, when the plans of many individuals need to satisfy constraints to avoid incurring the very high costs associated with such events as train crashes and brownouts, the constraint is not simple.

Second, when heterogeneity wihtin a product category implies that acceptable market performance may require producing and assigning the right units of products to invidvidual users.

Here is a good quote:

Issues of complexity are rarely addressed in economic discourse, and that blindness explains much of the resistance to the ideas of market design. Without complexity, what contribution could a market designer possibly make?

Thesis:

The novel perspective in this book is that complexity can, by itself, provide an important reason why some markets benefit from careful organization.

So in short, Milgrom wants to put complexity on the same playing field as issues like externalities and market power as justfiying regulatory intervention. And not just any regulatory intervention, but specifically this centralized form of market design intervention, which requires deep involvement from expert market designers.

Why?

Unorganized markets can take a very long time to correct any misallocation, particularly when the transactions are complex and require a multilateral reorganization within a heterogeneous product category such as land.
Second, opprotunitites to create value can be irretrieavably lost when some parties are excluded from the initial deal.
Third, the details of how a market is organized and operates can affect the efficiecy of exchange.
Fourth, the details of property rights can affect the ease of assembling and repackaging holdings.

How is complexity stabilized:

This image
Also there is a connection to “complexity theory” in computer science; render the problem something that is hard for computers.
Statements about the large “number” of constraints:

There are about 2.7 million logical constraints that restrict the assignments of TV channels to stations.

Allocating spectrum resources subject to the alrge number of constraints exemplifies the challenge in bringing a price-based market solution to complex problems of resource allocation.

Neoclassical economic theory ignores the possiblity that some optimization problems may be too hard for agents, or even for the fastest computer, but we have seen that radio-sepctrum allocations involve just such a problem.

Making complexity tractable for market participants:

The inherent complexity of this resource allocation poses another challenge for market design, namely, that excessive complexity of market rules can discourage people from participating. Even with clear and helpful property rights that Congress established, owners o TV stations are likely to find any market design in this context to have elements that are confusing. When a broadcaster must determine the amount it should bid in an auction to sell its stations, few (if any) are likely to understand precisely how the auctioneer will decide which offers to accept. The government’s value of any one station depends on all the other stations’ offers, but not only on that. It also depends on a complex, opaque computation that is very hard even for ast computers and that station owners might be unable to verify, let alone understand, even after the market has closed. Given such an imperfect understanding, how much should a station owner demand for its station in any negotiation.

A station’s inability to make this computation is important, because in a competitive market for TV spectrum, the value of any single station to the owner who is willing to sell should be just a bit lower than the selling price, and the value to the owner who is unwilling to sell should be just a bit higher.

If the government hopes that most broadcasters will participate and not demand very high prices, so that there is a chance to clear a lot of specturm, then it needs to encourage station owners by making it easy for them to participate confidently in the auction.

Why is this a problem for the government?

The single most compelling advantage to having a government agency conduct the incentive auction is that there are so many legal issues and political decisions involved in the process.