Institutional Innovations for Adaptable Future Cities

Abstract

In the 21st and forthcoming centuries, calls for institutional innovations will be continued to support the transformation of human habitats in the light of the rapid technological development. Technologies have given rises to new dimensions to measure cities and human activities. In some studies, for instances, internet traffic has replaced population density to measure concentrations of human activities. Online shopping volumes on Black Friday in the US and Single’s Day in China have become important performance indicators of the economies. Technology-wise, big-data, B2C and P2P platforms, GIS, automation and smart technologies, virtual and augmented reality, 3D printing, biotechnology and health tech, crowd funding and FinTech etc. have opened up many new possibilities to organize cities. An obvious example is about the advent of electronic road toll systems which integrate smart card, remote sensing, GIS, big data, smart and dynamic pricing, and even automatic driving and other technologies in the future will facilitate a new era of urbanization in a highly logical and efficient manner. Capture and redistribution of economic rents in the process of city development are likely to be shifted from real estate developers to providers of transportation and other public facilities. Applications of new technologies will resolve urban problems that were largely constrained in the past such as deteriorating liveability and environment, congestion, crime, mental illness, social disintegration, inequality and urban decay etc. Institution-wise, however, how ready cities are facing changes is a big question mark. It is especially an issue to many governments because the innovations themselves also create new problems. Take share economy for example, P2P ridesharing, shared bikes and shared accommodation etc. can better use underutilized resources and hence may alleviate traffic jams and shortage of lodging. They may contribute to tourism development, and even the organizations of international sports and exhibition events in marginally suitable cities. Conceptually, share economies create quasi-rents (Alchain, 2008) which are expropriable by legislation or new technologies etc. Individual service providers may attempt to capture the quasi-rents in uncoordinated, if not illegal, manners. Qualities of services in shared economies vary tremendously. Under information asymmetry, in order to avoid adverse selection problems (Akerlof, 1970), self-governance structures have emerged spontaneously. These self-governance structures attempt to regulate the service providers through market mechanisms, and serve as a signalling tool (Spence, 1973) to distinguish good products from the bad (lemons). The user rating systems and threats of eviction for violations are important self-governance mechanisms in the share economies (Cohen and Sundararajan, 2017). Albeit of the fact that some share economies have achieved noticeable successes in some countries, the efficacies still depend on many institutional factors. For instance, how receptive are the share economies not only by the users but also the conventional business sectors? How supportive are the formal rules, e.g. contracts, regulations and enforcement mechanisms such as courts and alternative dispute resolution systems to the share economies? From North et. al.’s (2009) perspective, tagging along the incumbent elites in limited access societies such that the markets will turn into open access ones could be a viable strategy. Players of the share economies should play a co-operative game (Brandenburger & Nalebuff, 1996) rather than zero sum game with the conventional sectors, or else institutional changes may be stifled in the early stages of development.