2. Some Basic Economics of Information Production and Innovation: Difference between revisions

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==Summary of the chapter==
&uarr; [[Table of Contents]]<br />
&larr; [[Part One|Part One: Overview]] | [[3. Peer Production and Sharing|Chapter 3]] &rarr;


===Overview===
== Content ==


* [http://www.benkler.org/Benkler_Wealth_Of_Networks_Chapter_2.pdf Full text (PDF)]
* [[Sentence-sliced Text Chapter 2|Full text, sentence-sliced (wiki)]]
* [[Summary Chapter 2|Summary (wiki)]]


== Summary ==
Information and culture are fundamentally different from standard "economic goods" such as steel and cars two ways.  First, standard goods are rival or exclusive while information is nonrival.  Consider an apple: If I eat it, you cannot also eat it.  If you want to eat an apple too, more resources (trees, irrigation, fertilizer, labor, etc.) will have to be expended to procure you that apple.  This is not the case with information.  You and I can both read this book at the same time.  My consumption of the information contained in the book in no way diminishes that information or prevents others from consuming it as well.  The second way in which information differs from other goods is that it is both and input and an output of its own production process.  Consider a wood table: the inputs of the production process are wood, fastening devices (nails, glue), and labor.  A carpenter uses these things to make the output: a table.  Now consider an academic paper:  The inputs are ideas and labor and these ideas are often grounded in previous academic papers.  Academic papers are thus "used" in producing new academic papers


Information is nonrivalrous (we can both use it at the same time). It is also circular in that it is both input and output to its own production -- building a table requires wood, writing a paper requires other papers. Copyright laws are justified as making information rivalrous and thus creating a market for it but are constrained so that later the result can be used in the circular production process. But how is producing information actually motivated?


It is these two properties of information, nonrivalry and input/output circularity, that
Strategies of producers fall along two axes: benefit maximization (using exclusive rights to make money, using nonexclusive rights to make money, using nonexclusive rights to get non-monetary benefits) and cost minimization (using public domain information, using purchased/owned information, and using privately shared information). This results in nine production strategies. Each strategy receives different inefficiencies from copyright law, so a law's effects depend on which strategies are used. But which strategies get used depends on the law.
explain why the law gives people some property-like rights over information but limits those rights in comparison to those given over other types of goods. The standard rationale for giving people property-like rights over information is that people will fail to produce information if they have no incentives to do so.  Copyright, which grants the right holder a monopoly over her creation, allows her to turn information into a rival good, creating scarcity and, thus, a market for her work. That is, while the actual cost of producing a second copy of a book is marginal (it is merely the cost of photocopying the pages), copyright prevents people (through threat of sanction) from doing this without the author's permission, and thus allowing the author to control the distribution of her work.


The standard rational for limiting the monopoly rights created by copyright and patents is that because information is both an input and an output of information, we should not allow the "building blocks" to be captured indefinitely or entirely.  Thus we have time limitations on copyright, thus returning old information to its nonrival state, and "fair use" provisions, allow new producers to use otherwise protected information in certain ways and contexts (e.g., criticism, parody, news reporting).
Which strategies are used also depends on the technology. New technology has made nonmarket strategies more practical, but incumbent firms want to protect their own models by strengthening copyright laws.


Many economists describe the system of intellectual property as a balance of static and dynamic efficiencies: Intellectual property creates static inefficiency by artificially raising the price of information goods, but this inefficiency is balanced out, however, by gains in dynamic efficiency in form of creating an incentive for new information production.  
==Sources==
===Sources cited in the chapter===
===Other relevant readings===
 
==Case Studies==
===Supporting examples===
""As it turns out, repeated survey studies since 1981 have shown that in all
industrial sectors except for very few—most notably pharmaceuticals—firm
managers do not see patents as the most important way they capture the
benefits of their research and developments. They rank the advantages that
strong research and development gives them in lowering the cost or improving
the quality of manufacture, being the '''first in the market''', or developing
'''strong marketing relationships''' as more important than patents."
from page 40-41


This chapter explores whether the realities of information production fit well with standard economic theory.  It argues that the efficiency of regulation information, knowledge, and cultural production through strong copyright patent is not only theoretically ambiguous but also empirically inaccurate.  This chapter posits that innovation and information production is driven mostly by a mixture of (a) nonmarket sources (both public and private) and (b) market actors whose business models do not depend on the protections of intellectual property.
(emphasis on their strong relevance to Open Source bazaars - [[User:Red1|Red1]])


The chapter concludes that while granting exclusive rights-based over information provides some incentives for the future production of information, a comprehensive intellectual property regime that mimics property too closely (such as the system in both the United States and the European Union) cannot work perfectly even under ideal conditions. The upshot is that noncommercial production can often be more efficient and more important commercial production and that noncommercial production is thus moving to a more central role in our information production system.
In the case of Open Source the author gave the example of how IBM spends millions on it to gain other benefits of savings here, but the criteria above of branding and strong market gains are ever more relevant. So much so, erroneusly learning from Linux, many copycat projects are exploitatively trying to ride on ''planting the flag on the mountain'', and what they put out even though open, are more of 'market positioning' ploys. A September 2006 case is [http://en.wikipedia.org/wiki/Compiere Compiere ]been a premier OS player in the Small Medium Business sector, but adopts a  [http://en.wikipedia.org/wiki/The_Cathedral_and_the_Bazaar ''Cathedral''] approach instead. They soon lost the branding advantage to [http://www.adempiere.com/wiki/index.php/Media_Coverage ADempiere] been obediently true ''peer-based community'' Compiere fork which proves the author's basis in this chapter. The ''wealth of networking'' by the community members quickly obliterate whatever [https://sourceforge.net/project/stats/?group_id=176962&ugn=adempiere advantage] Compiere had prior to it going after some funding - the matador's cloth of many OSS ploys. As another more recent case of [http://opensourceculture.blogspot.com/2006/11/yes-i-know.html Redhat vs Oracle] shows, such ''ploys'' are beginning to show its slip.
By such account, other pro-monetary projects such as MySpace, Google, YouTube may suffer the same threats as Netscape, Yahoo! and Hotmail has. [http://www.adempiere.org ADempiere] and another similar [http://en.wikipedia.org/wiki/Mambo_(CMS) OSS] fork, [http://www.joomla.org/ Joomla!] are living proofs that OSS can stay rich for all its members without funding, and in perpetual mode.


===The Diversity of Strateges in Our Current Information Production System===
===Counter-examples===


===The Effects of Exclusive Rights===
==Key Concepts==


===When Information Production Meets the Computer Network===
'''Non-rival''' (36)


===Strong Exclusive Rights in the Digital Environment===
'''Standing-on-the-shoulders-of-giants Effect''' (37)


==Sources==
'''Input/Output Circularity (see Standing-on-the-shoulders-of-giants Effect)
===[[Sources cited in the chapter]]===
'''
===[[Other relevant readings]]===
==Case Studies==
===[[Supporting examples]]===
===[[Counter-examples]]===
==Key Concepts==

Latest revision as of 09:14, 19 August 2007

↑ Table of Contents
← Part One: Overview | Chapter 3 →

Content

Summary

Information is nonrivalrous (we can both use it at the same time). It is also circular in that it is both input and output to its own production -- building a table requires wood, writing a paper requires other papers. Copyright laws are justified as making information rivalrous and thus creating a market for it but are constrained so that later the result can be used in the circular production process. But how is producing information actually motivated?

Strategies of producers fall along two axes: benefit maximization (using exclusive rights to make money, using nonexclusive rights to make money, using nonexclusive rights to get non-monetary benefits) and cost minimization (using public domain information, using purchased/owned information, and using privately shared information). This results in nine production strategies. Each strategy receives different inefficiencies from copyright law, so a law's effects depend on which strategies are used. But which strategies get used depends on the law.

Which strategies are used also depends on the technology. New technology has made nonmarket strategies more practical, but incumbent firms want to protect their own models by strengthening copyright laws.

Sources

Sources cited in the chapter

Other relevant readings

Case Studies

Supporting examples

""As it turns out, repeated survey studies since 1981 have shown that in all industrial sectors except for very few—most notably pharmaceuticals—firm managers do not see patents as the most important way they capture the benefits of their research and developments. They rank the advantages that strong research and development gives them in lowering the cost or improving the quality of manufacture, being the first in the market, or developing strong marketing relationships as more important than patents." from page 40-41

(emphasis on their strong relevance to Open Source bazaars - Red1)

In the case of Open Source the author gave the example of how IBM spends millions on it to gain other benefits of savings here, but the criteria above of branding and strong market gains are ever more relevant. So much so, erroneusly learning from Linux, many copycat projects are exploitatively trying to ride on planting the flag on the mountain, and what they put out even though open, are more of 'market positioning' ploys. A September 2006 case is Compiere been a premier OS player in the Small Medium Business sector, but adopts a Cathedral approach instead. They soon lost the branding advantage to ADempiere been obediently true peer-based community Compiere fork which proves the author's basis in this chapter. The wealth of networking by the community members quickly obliterate whatever advantage Compiere had prior to it going after some funding - the matador's cloth of many OSS ploys. As another more recent case of Redhat vs Oracle shows, such ploys are beginning to show its slip. By such account, other pro-monetary projects such as MySpace, Google, YouTube may suffer the same threats as Netscape, Yahoo! and Hotmail has. ADempiere and another similar OSS fork, Joomla! are living proofs that OSS can stay rich for all its members without funding, and in perpetual mode.

Counter-examples

Key Concepts

Non-rival (36)

Standing-on-the-shoulders-of-giants Effect (37)

Input/Output Circularity (see Standing-on-the-shoulders-of-giants Effect)

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