October 2006

Chapter 2: Some Basic Economics of Information Production and Innovation

This is a really interesting chapter, where he lays out the basic economic theory behind information production. He basically starts out with asking what is the most efficient way of producing information, in the sense of the greater good. Basically, the most efficient for society’s greater welfare is if everyone gave information away for the cost of distribution only. He says that the standard reason why people say that exclusive rights are important is that this will encourage information production and innovation:

"In order to harness the efforts of individuals and firms that want to make money, we are willing to trade off some static inefficiencies to achieve dynamic efficiency. That is, we are willing to have some inefficient lack of access to information every day, in exchange for getting more people involved in information production over time."

This is, in fact, a critical issue. He further says:

"If information producers do not need to capture the economic benefits of their particular information outputs, or if some businesses can capture the economic value of their information production by means other than exclusive control … the justification for regulating access by granting copyrights is weakened."

He goes on, in a variety of ways, to show that both of these things are true.

He talks about quirks of information production, and the concept of rival vs. nonrival goods. A rival good is something that if you have it, I can’t – if I want one, someone has to work to get/make it. Food items are rival. Cars are rival. A nonrival good is something that both of us can have at the same time, without any additional labor or resources. Electronic information is nonrival – it’s marginal cost (cost after initial production) is basically zero. Because of this, there in fact might well be negative benefit to copyright, not positive benefit. In fact, he shows that the data shows that there is a decrease in information production with increasing patent protection. This is because the cost of more information production (which, of course, is based on previous information production) increases with patent protection and copyright.

He goes into a very interesting discussion of the matrix of strategies of information production: Rights-based, Nonexclusive-market, and nonexclusive-nonmarket types of production. He then discusses the strategies of each: like the Romantic Maximizer film director who sells work to a "Mickey" like Disney, or the ‘Jane’ (he uses Joe, but I’m taking liberties) Einstein sitting in her basement coding, releasing her software via copyleft to a Limited sharing network.

He then talks about these different types, and the revenues that they actually get that depend on copyright protection (not a whole lot.) He then says:

"The difference that the digitally networked environment makes is its capacity to increase the efficacy, and therefor the importance, of many more and more diverse, nonmarket producers falling within the general category of [Jane] Einstein. It makes nonmarket strategies – from individual hobbyists to formal, well-funded nonprofits – vastly more effective than they could be in the mass-media environment."

What I took home from this chapter are two things: 1) in effect, in this networked environment, copyright and patent protection are, in fact, counter to the greater good of society (I knew that one already – but it’s nice to have economic arguments to help) and 2) There is a lot of potential that is available to be harnessed from people who are doing things for a wide variety of reasons. Stay tuned for Chapter 3.

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I kept hearing about this book. My friend Katrin over at NTEN told me about it first, then it kept popping up all over. The book is "The Wealth of Networks", by Yochai Benkler, who is a professor at Yale Law School. It’s available at that link in a multitude of forms. I have it in nice, wonderful book form. I like portable that way.

Anyway, I should apologize in advance for overlapping series (or not, I guess.) I’m not finished with the Web 2.0 series, but I really wanted to delve into the meat of this book, and blog about it. I think I’m liking the book so much because it’s an amazing combination of some of my favorite things: technology, law and economics. (No, sadly, no theology here, but I could probably find a way to weave it in.)

I’ll start out with Chapter 1, which introduces the basic ideas of the book, and the importance of this particular moment. He lays out the beginnings of his arguments – that information and cultural production are central to human freedom and development, and that this new, "networked information economy" is providing a disruptive moment in time, and, with social action, we can use this new kind of economy to further human freedom, even as other forces are trying to create systems that will limit it.

He lays out some interesting concepts, things I’d been aware of, but not really studied enough to articulate. He talks about how the motivations for information and cultural production are very often nonprofit and nonproprietary, and that as the costs of information production goes down, those motivations start taking the fore – they become more important. He talks about the ways that a networked information economy increases autonomy for individuals, and he deftly answers the critiques of the democratization of information that the networked information economy provides. And then he lays out the resistance of actors which he calls part of the "industrial information economy" that are working to limit this broadening effect on autonomy and freedom. He argues that we are going to have to work for this – it’s not going to just happen because the technology provides these opportunities.

I’ll be blogging chapter by chapter, probably. They are pretty dense, although I’m having a great time with Chapter 2 already – it’s nice to see empirical evidence for things I’ve been thinking for a while.

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