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IoT applications

The Nobel laureate in economics Ronald Coase in his 1937 work “The Nature of the Firm” best demonstrated the dichotomy «hierarchy vs free market» and gave an explanation of the reasons for the existence of organizations, in particular firms. Coase discusses the impact of transaction costs (the cost of collecting and processing information) to make decisions about the conclusion of a contract and to monitor its implementation. The firm, with all its hierarchical extra-market structure, is formed as the most efficient way to provide the consumer with the target product with the lowest transaction costs at the moment, when the transactional effort to create the same product through multiple exchanges on the market between individuals becomes much higher. To best visualize this process, look at the illustrative example of buying a car. Try to buy a car by the parts and calculate how much money and time you will spend just to assemble all the components in your garage. The risks and negotiation costs of buying parts are too high compared to Tesla’s off-the-shelf Model X.

Nevertheless, this does not lead to the emergence of the world’s only firm for the production of everything. The point is that the same transaction costs also impose restrictions on the size of firms. Coase writes:

“...a firm will tend to expand until the costs of organising an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market...”

In other words, the more complex the hierarchy within the firm, the greater the internal costs, and at some point, they turn out to be excessive compared to the costs of returning to the market. Therefore, to ensure their growth as one of the drivers, entrepreneurs are looking for ways to reduce these costs.

In 1948 a professor of mathematics at the MIT Norbert Wiener published one of the most seminal works "Cybernetics: Or Control and Communication in the Animal and the Machine". He used the term "cybernetics" as self-regulating mechanisms for the first time and, so, this publication is considered a recognized Cybernetic birthday.

Norbert Wiener speaks about viability of interdisciplinary science approach. For example he drew the parallels between automated control systems and challenges of scaling and complexity increasing of human society.

So, in other words, the cybernetic approach can be applied equally to psychotherapy, biology and automated navigation. It is based on the function of the system, how the individual actions are controlled and how the individual nodes interact with each other.

Taking into account Ronald Coase's and Norbert Wiener's publications, following up the development of Industry 4.0, we can consider using CPS as an economic agent, while designing robotized services. To regulate the size of the CPS and adapt to the changing needs of the individuals we can use market mechanism.

And what’s so scientifically interesting, taking as a basis the idea of the restrictions imposed by the market on the size of the firm, we can say that the limit of the increase in CPS will always be determined by the market and nothing else is required for this.

Robofirms are an ideal representation for cyber-physical systems. They are a fairly autonomous unit capable of providing services to both humans and other robots for money. As a result, the robot economy appears to us to be a general set of CPSs that provide services and goods directly to the market.

One extremely popular question that still remains open — the goal setting of robots when providing services to people. This is a specific but academically important question. The fact is that human economics often includes factors related to the good faith performance of tasks in a contract, the desire of the parties to achieve a result, and the opportunistic and altruistic behavior of the individual in society. It is difficult to talk about such issues in robotics today, so the developers of Robonomics would like to leave teleological issues open for further study, and focus their attention on the praxeological part of robots’ behavior as economic agents. Regarding goal setting, an early article by Norbert Wiener and his colleagues “Behavior, Purpose and Teleology”, as well as the work of the American economist and philosopher Ludwig von Mises on human activity can be considered as points of reference.

Mises, in his book «Human Action: A Treatise of Economics», looks at the human being in economics from a praxeological perspective. Praxeology gives us an interesting insight into human behavior without a direct correlation to the ultimate goal. By continuing to study the phenomena in human economics from the perspective of the processes themselves, separated from the end goals, we can understand more about the framework that can be formed for a robot economy, so as not to delve into questions of machine teleology.