WoN: Information Economics

[Part One in a series: Reading Benkler's Wealth of Networks.]

How does information production differ from the production of material goods? Two key differences that I want to explore in this post concern (1) access to the means of production, and (2) the "non-rival" nature and marginal cost of information.

1) The means of production are more widely distributed and accessible than ever before. Anyone with a computer and internet connection is capable of contributing valuable information to society, through such “peer production” efforts as Wikipedia. Add the right software into the mix and they may also contribute to our cultural stock, through creative or satirical “mash-ups” and other media production. As Benkler explains:

The high capital costs that were a prerequisite to gathering, working, and communicating information, knowledge, and culture, have now been widely distributed in the society. The entry barrier they posed no longer offers a condensation point for the large organizations that once dominated the information environment. Instead, emerging models of information and cultural production, radically decentralized and based on emergent patterns of cooperation and sharing, but also of simple coordinate coexistence, are beginning to take on an ever-larger role in how we produce meaning—information, knowledge, and culture—in the networked information economy. (pp. 32-33)

Individual human capacities, rather than the capacity to aggregate financial capital, become the economic core of our information and cultural production. Some of that human capacity is currently, and will continue to be, traded through markets in creative labor. However, its liberation from the constraints of physical capital leaves creative human beings much freer to engage in a wide range of information and cultural production practices than those they could afford to participate in when, in addition to creativity, experience, cultural awareness and time, one needed a few million dollars to engage in information production. From our friendships to our communities we live life and exchange ideas, insights, and expressions in many more diverse relations than those mediated by the market. In the physical economy, these relationships were largely relegated to spaces outside of our economic production system. The promise of the networked information economy is to bring this rich diversity of social life smack into the middle of our economy and our productive lives. (pp. 52-53)

Peer production involves breaking a task up into discrete “chunks” that may be easily completed by volunteers. The cumulative effect of these non-market contributions – spurred on by diverse human motivations, from reputation gain to the artistic thrill of creation – is the production of a hugely valuable information resource. Wikipedia is but one example; SETI@home is another, whereby ordinary citizens contributed their spare computing capacity towards creating the world's most powerful super-computer. (The SETI@home screensaver performs computations when the user’s computer is otherwise idle, and then send the results over the internet back to SETI.) “Peer to peer” networks, or p2p, have shown themselves to be among the most efficient information distribution mechanisms society has yet discovered – much to the chagrin of incumbent industries.

It's worth noting that peer produced ("open source") software is often judged to be of higher quality – more dependable and secure – than its closed, proprietary, counterparts. As Eric S. Raymond put it, "given enough eyeballs, all bugs are shallow." (Proof: compare LINUX to Windows.) Hence, the U.S. Presidential Technology Advisory Commission “advised the president in 2000 to increase use of free software in mission-critical applications” (p.321).

2) The economics of information production differs importantly from material production. Information is non-rival: when one passes along information, it does not make the provider any poorer (unlike if I passed along their jewellery!). Distribution of pure information has a zero marginal cost – additional listeners do not raise the production costs at all. Since economically efficient pricing is, by definition, the marginal cost of the product, it follows that any (non-zero) pricing for pure information is necessarily inefficient.

This inefficiency may be tolerated for the sake of incentivizing initial production. (Hollywood won’t make blockbusters for free; by artificially restricting access to the digital information film-makers produce, we encourage them to produce it in the first place.) But we shouldn’t blindly assume that granting ever stronger exclusive access rights (“Intellectual Property”) over information will necessarily improve outcomes, the way we might expect of markets in material property. In addition to the local inefficiency of excluding those unwilling to pay the artificially inflated price – who could otherwise have gained a benefit at no real cost to anyone else – there is also the “big-picture” concern for stunting down-stream production.

Present info-cultural productions build on our info-cultural heritage, or what past production has contributed to the public domain. This is known, with reference to Isaac Newton, as the “on the shoulders of giants” effect. But if today’s info-cultural productions are locked away behind excessively strict and long-lived IP protections, this raises the costs for tomorrow’s producers. Balance is thus needed to ensure that present incentives don’t become future disincentives.

In summary: The combined effect of these two general observations is to highlight the economic desirability of open access to information, in at least some contexts. The information economy increases the viability of widely distributed, large-scale production efforts that take place outside of both state and market action. Such production is valuable and efficient enough to be worth nourishing, but is highly dependent on open access to “the shoulders of giants”. Although some artificial restrictions on information access may be beneficial, we should be aware that IP extremism diminishes the public domain, and may thus prove an obstacle to future creativity. Further, much information production is not motivated by IP revenue in the first place -- the growing role of peer-production should not be neglected -- so for this class of activities, strengthened IP law imposes costs without any corresponding benefit at all.