I’ve been thinking a bit recently about how accounting principles just don’t seem to work when applied to social network, and possibly not even to networks in general.

For example over at unfogged.com Ogged writes a nice little post where in he declines to take too seriously a bit-o-publish/perish research showing that women are generally less effective negotiators than men.

Meanwhile over at Crooked Timber we find Chris talking about the thousands of deaths during the recent heat-wave in France. He quotes Eric Klinenberg’s fascinating work on an analogous situation that happened in Chicago a few years back. Apparently in that disaster men tended to die in much greater numbers than women, in-spite of the data’s suggestion that pool of women was both larger and more vulnerable. Why? Because women have stronger social networks.

Clearly these two are related. You can optimize for the easy to measure short term benefit of optimal negotiated outcome, or you can optimize for a strong social network – which will deliver value in the long run. Of course that’s not black and white.

Finally I’ve been nurturing a model of why the electric grid in the Northeastern US fell apart the other day. A model that works from the assumption that the guys running elements of the grid all knew that there was good chance that it would collapse and were running the business on that basis – creating a feedback loop which accelerates the chance of a collapse. Each owner of an element in the network keeps lowering his trigger points for when he will exit the system because he’s thinking that when the collapse happens he better protect his capital investment. That makes the system increasingly susceptible to cascading failures.

There is another side to the story which is nicely summed up in this article by John Kay. The scenario he outlines involves the complex trade-off a firm makes between short-term income and long-term capital investments. Regulation and standard (ethics, professional standards, inspection regimes, etc.) all work to temper an a cyclic instability in that game.

Consider two identical power generators A and B are selling to the same customers in a competitive market. To first order their costs are identical. Mr. A comes in one morning and discovers that Mr. B is selling power for less than he is. Puzzled he drives by Mr. B’s plant and discovers he’s stopped trimming the trees under his power lines and repairing the roof. Incompetent he thinks. When he get’s back to the plant the next day the accountant comes into his office and explains that due to lost revenue they need to borrow money to meet payroll. The next day Mr. A fires the crew that trims the trees under the power lines and lowers his prices.

Both Mr. A and Mr. B are now caught in a rush to the bottom. If one of them can survive and the other one doesn’t the winner will be sitting pretty. The one with the most stored up fat in their business will survive.

While, there is plenty that’s different between a collapsing social network; and the collapsing electrical grid. In fact all the networks have important subtle differences. For example the triggers in the electrical grid are obviously very sharp, while social networks and the Internets packet networks are breakdown more gracefully, so the nature of the cascade failures are very different. Some networks are more brittle than others.

Another difference is the nature of what happens when the network does fail. Some network communities have what you might call social will to rebuild while others don’t. I suspect that the social network in authoritarian nations have a lot more trouble rebuilding than those in more liberal nations.

The players in the industry around the electric grid probably assume that after the collapse political will emerge to assure a stronger regulator hand and that will allow them to turn again toward investing in maintenance, capital equipment, talented staff, etc.

This faith that the social contract will save us is a beautiful thing. That people believe these things will heal themselves testifies to the faith people have in the social contract. That collectively people will work to create standards of behavior that serve the public good.

Of course the players might be wrong. For example in this article here we see President Bush deciding that upgrading standards for the distribution grid is really not that urgent a priority. Presumably that provides more time for the guys to get together and negotiate an optimal outcome. Meanwhile the old ladies always have their social networks.

Some people don’t believe in the public good, the social contract, need to regulate the networks, the markets, etc… Men!