Crawl Across the Ocean

Tuesday, June 21, 2011

92. Information Sharing

Note: This post is the ninety-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

A number of posts ago, I discussed an essay by Joseph Heath in which he posited that there are 5 distinct types of cooperation: Economies of scale, trade, risk-sharing, information transmission, and self-binding.

This week I wanted to go into a bit more detail on the differences between information transmission and what we normally think of as trade, using the essay, "The Next Economy" by Brad Delong and Michael Froomkin as a starting point.

Delong and Froomkin set out 3 primary differences between information and more typical physical goods:

1) Information is non-excludable - Once a piece of information exists it is hard to control who has access to it (recall the friends episode where Chandler and Joey try to figure out the path that the information that Ross slept with someone else will take to get to Rachel). The primary implication of non-excludability is that goods might be under-produced (as compared to the socially optimal level of production) because people won't be forced to pay a price for the information that is commensurate with the value that information has to them (i.e. somebody might be willing to pay a high price for the latest Sufjan Stevens album, but instead just download a free copy off the internet).

Society has generally responded to this lack of excludability by trying to restore it via copyright and patent laws that go after free riders.

As Delong and Froomkin note, this is a balance between the costs of enforcement and the reduction in information sharing on the one hand, vs. the added incentives to generate valuable information on the other.

2) Information is non-rival - You can't really transfer possession of information from one person to another, you can only share it. Unlike, say, a chair which only one person can sit on at a time, an effectively infinite number of people can have access to the same piece of information.

As the authors say, "the existence of large numbers of important and valuable goods that are non-rival casts the value of competition itself into doubt."

In a goods market, when sellers compete on price they allow more people to benefit from the product being sold by reducing the price to their marginal cost. But with non-rival goods like information, the marginal cost is zero and if competition was to drive the price down to 0, the producers would go out of business. In this environment, competition might end up taking less beneficial forms than lower prices (e.g. methods to lock customers into your product and prevent them from having access to other providers).

3) Transparency: When you're buying a chair, you can usually get a pretty good idea of the quality and comfort of the chair before you buy it. But with information, this is much more difficult. If you don't have the information, how can you judge its value. If you do have the information, why would you pay someone else for it. Information is the side product that allows you to value other products before you buy them, but it is hard to make it work on itself.

We can see that the unique nature of information undermines some of the traditional commercial virtues that make up the commercial syndrome.

The benefit of competition is reduced with information. Both from economies of scale (people are better off browsing a single large library than they are searching through a million little ones.) and from the hazards of price competition in an environment where marginal costs are zero.

The (financial) incentive to innovation and industriousness is lowered by the lack of rewards that may come for your efforts.

The benefit of being honest is less when it is difficult for people to tell ahead of time if you are lying or providing a poor quality product.

Respect for contracts is undermined by a legal system that places artificial restrictions on sharing of information that reduce overall social welfare and technology that makes evading those restrictions easy for anyone to do with little consequence.

On the other hand, some commercial syndrome elements seem even stronger when it comes to information - shunning force makes even more sense when there is so little to be gained through the use of it (see the widespread disdain for industry groups that sue their customers).

Collaboration with strangers has flourished in an era of information transmission.

The quick transmission of information has led to a high regard (some might say too high) for inventiveness and novelty.

With respect to the guardian syndrome, information does have some of the characteristics of public goods, meaning that there are social benefits to government ensuring there is adequate production of them. And indeed government funds most basic research and takes a major role in transmitting information (via education) to each generation of citizens.

But information sharing is no place for the use of force, or respect for tradition, and individuals and companies that spend their time in the world of information generation and transmission often seem just the opposite of stuffy government rules and procedures - so clearly information sharing is not a typical guardian activity.

To be honest, I'm not sure quite what to make of information as an area of cooperation that seems to be distinct from both the traditional commercial syndrome ethics and from traditional guardian ethics. Maybe the unique nature of information demands its own set of ethics but the relatively new importance of information in the economy means that this has yet to be fully developed.

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