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Launch of Experimental-Economics Laboratory Gives Startup Cities a Know-How Boost

By: Belén Marty - @belenmarty - May 12, 2014, 5:00 am

EspañolThe Startup Cities Institute at the University of Francisco Marroquín in Guatemala, together with the Vernon Smith Center for Experimental Economics, has launched a “Lean City Lab” — the objective being to offer tools and comprehensive advice to those interested in the creation of startup or charter cities. These findings will come primarily from controlled trials and the application of experimental economics.

To get a more precise explanation for what this new project means, though, we spoke with Zachary Cáceres, SCI’s executive director. The organization he leads is a nonprofit research center that studies the application and creation of startup cities (previously known as free or model cities) as a way to achieve rapid political and social reform.

These micro-jurisdictions, established within a nation, seek to utilize competitive forces and innovation to combat corruption, insecurity, and a lack of transparency. They also offer an opportunity for trial and error, to experiment with various forms of administration towards environmental management and poverty reduction, among other goals.

Source: SCI.
Source: SCI.

More specifically, the Lean City Lab will seek to assist with the initial strategic planning. Examples could include finding the right location, structuring the land-sale processes, and tailoring the institutions for particular contexts. Once a startup city is established, the lab will offer insights from controlled innovations of law, governance, and public policy. The plan is to apply the same experimental economics already in use by both governments and large-scale entrepreneurial ventures.

What will these experiments look like?

The details of experiments will depend on the needs of the study. Generally speaking, experimental economics brings people into computer laboratories to simulate markets or other economic structures. We have a lab available right in our home at the University of Francisco Marroquín. The lab environment allows for researchers to tweak variables and change market structures to see what effects different aspects, such as the rules of an auction, may have on an outcome.

Seeing the outcome of experiments can help guide those involved in a reform or an entrepreneurial decision. In fact, reformers have used experimental economics to structure decisions worth billions of dollars. Large businesses use techniques like these as well.

In addition to these lab experiments, Lean City Lab can also pursue field studies and randomized-control trials (RCTs). RCTs are a gold standard in medical research. A few pioneers have brought them to social sciences in recent decades. While none of these methods are flawless, a broadly experimental approach is crucial to a solid understanding of social phenomena.

For SCI, this partnership also signifies our deep commitment to the experimental method. Startup Cities themselves, just like tech startups, are tools for trial-and-error learning about the social world. The success of startup businesses signifies their ability to learn and adapt to their market. Startup Cities function similarly, but with governance. Their success hinges on their ability to provide a community that’s attractive to citizens and thus to adapt to the global market for governance.

Experimental economics is a natural fit to support these projects. It’s the experimental method all the way down.

Who will be the target audience?

Our audience is reformers, entrepreneurs, and activists. These people are the drivers behind startup cities reform, and they’re the most likely to need economic experiments to guide their efforts. We want people to act responsibly, ethically, and with the best information possible.

We may also use Lean City Lab as part of our commitment to monitor reforms and provide objective analysis of the processes.

Within startup city projects, there are ample opportunities to learn valuable lessons about economy and society using RCTs and experimental economics. Municipalities with a high degree of autonomy are ideal testing-grounds for innovation as well as research into what makes a healthy community.

What other nations, besides Honduras, may be close to implementing legislation?

The only other nation that has passed laws specifically to pursue the Startup Cities approach is the Republic of Georgia. Other countries like China have stumbled into many aspects of this approach through their expansion of their special economic zones.

At SCI we have spoken with people from numerous countries and from every continent. The contacts we’ve made are wild — everywhere from little islands in Oceania to Somalia. For some, this idea is still a moonshot that inspires them. For others, it could become a reality in a few decades. For a smaller group still, they’ve already begun work towards the goal of startup cities in their own nation. though no laws are yet passed. The strong and growing interest we’ve seen at SCI gives us plenty of reasons to wake up each morning full of optimism.

Do governments need to pass new laws?

It’s important to point out that some nations may not need to pass news laws or may only need to tweak existing laws. Some nations, like Panama, also have laws on the books that may enable startup city-like projects, but the laws are not yet enforced.

Source: SCI.
Source: SCI.

Startup Cities don’t need to be made specifically from special laws.

Many nations have rich histories of economic zones, enterprise zones, business development districts and other semi-autonomous areas. And, of course, new municipalities are incorporated all over the world every year. Most just don’t have enough autonomy to compete effectively with each other.

There are many roads to startup cities, some are better and more effective than others. The Honduran ZEDEs have many potential benefits but also risks of their own. There is no such thing as the “perfect” way to pursue startup cities. It’s a mistake to assume that anyone knows the ideal road to building healthy reform zones, especially at this early stage. At SCI, we’re working on a comprehensive library of legislation that may be used to aid in the development of Startup Cities. But many discoveries remain for those willing to venture into this exciting territory.

Remember, startup cities is not a particular project or law. It’s an approach to reform. It’s a method, an attitude of humility before the complexity of politics and a way of learning and adapting to the future — just like the startup approach in business channels the audacious vision of entrepreneurs into responsible vehicles for learning called tech startups.

Startup cities applies the best tools we have from technology and entrepreneurship to learn from trial-and-error and grow better forms of governance. That’s much bigger than any particular law.

Belén Marty Belén Marty

Belén Marty is the Libertarian Latina, a journalist based in Buenos Aires, Argentina. She has lived in Guatemala, Jordan, the United Arab Emirates, and the United States and is a former candidate for local office with Argentina's Libertarian Party. Follow @BelenMarty.