Alternatives to Financing the Standards Development Process

Over the last several years, economists have studied the impact of standards on market dynamics. Recently, there has been increased attention to standards as barriers to free trade. The O ce of Technology Assessment [US Congress, O ce of Technology Assessment, 1992] has suggested a variety of policy level concerns, including trade related matters, and suggests that in part the issues may be based on the U.S. approach to funding standards. Weiss and Toyofuku [Weiss and Toyofuku, 1993] examined the costs and bene ts of standards development with an eye to determining who bears the majority of the costs and who derives the most signi cant bene ts. This paper proposes and demonstrates a framework for examining the nancing of the standards process. This analysis examines the types of costs borne by di erent participants and the bene ts they receive from participation. This qualitative analysis provides a framework for subsequent quantitative analysis. Thus, the primary objective of this paper is to set the stage for more detailed cost/bene t analyses. Subsequent research would include both theoretical analyses of the impact of alternative nancing strategies on social welfare and empirical analyses of the present and alternative approaches. The paper concludes with an analysis of current funding strategy and proposes alternative strategies for nancing. In developing alternative funding strategies we seek to distinguish those aspects of the standards process that are best left to private nancing from those aspects which will be under-provided by privately nanced strategies suggesting some role for government. With the elimination of many of the traditional mechanisms used to restrict free trade as a result of the Uruguay round of GATT, standards { previously a minor barrier to free trade { become one of the signi cant remaining barriers to free trade.