State and standards

In this paper a new economic approach to standardization has been presented. Standardization has been regarded as a problem ofgradual choice. An individual chooses to apply more or less standards within a hierarchy of standards. With this decomposition of standards, the problem of strategic market power becomes less important than in the traditional models of standardization. It becomes possible to analyze the problems of network externalities within a framework of non-strategic behavior and to apply the tools of the traditional theory of externalities and public goods. While decentralized action may lead to too little standardization, committees may overcome this deficiency to some extent, but bureaucracies are likely to lead to overstandardization. In the empirical section of the paper it has been shown that our approach can be applied to the standard-setting process in languages, railroads, and telecommunications. In all three cases the tendency of bureaucracies to generate more standardization than committees has been corroborated.The authors are indebted for helpful comments to the participants of the Berlin Seminar on Political Economy and of the colloquium Algemene Economie, Rijksuniversiteit Groningen, and to A. Roemer, Saarbrücken.