C. De Long wrote:
>
>Consider that, for the most part, since the industrial revolution
>commodities have been rival, excludible, and transparent.
>
>Rival in that if X is using it, Y can't be. Thus anyone's use of a good
>imposes a social cost on the rest of us. And the principal of making sure
>that individuals' incentives are matched to social costs and benefits leads
>one to think that "charging" people a "price" for using "scarce" resources
>would be a good thing for a social resource allocation mechanism to do. The
>market does this. But what would a good social resource allocation
>mechanism look like when most things of utility have high first-unit costs
>of production but effectively zero marginal costs? Charging each marginal
>user a substantial "price" doesn't make any sense any more...
First, I should say that I have not bought nor do I now buy the concept of an "information economy". I think software is very much like other goods in the marketplace and is simply more of the kind of thing that has been sold in the capitalist marketplace since its inception. Software is developed by people who need to be educated and thus relatively unproductive during that time. The resources spent in their upkeep and the upkeep of the relatively unproductive people who train them are the scarce and "rival" resource. If the resources that support information were not "rival", then there would be Stanford's, Oxford's and M.I.T.'s everywhere and accessible to everyone. It appeals to the Ayn Rand ideal of today to think of brilliant individuals solving the world's problems based simply on what they read in books and their own creativity. Fine, except somebody had to write those books and while she did she wasn't making any TV sets or welding car doors but she did require food, clothing, shelter and lots and lots of coffee, all scarce resources. Modern technology simply gives the business of ideas (which really boils down, in an economic sense, to industrial design) more efficient means of broadcast and makes design work less likely to be wasted on redundant effort.
As for the idea of "effectively zero marginal costs", it is based on the idea that some engineer develops a prototype and the subsequent copies are simply a matter of printing the disks. People in the software industry tell me that a prototype and fifty cents will get you a cup of coffee (possibly with a venture capitalist). Software, like all other industrial designs, has to be continually re-worked at significant cost.
>Excludible in that it is easy and simple for someone--the "owner"--to
>control who gets to use a good. The fact that control over use is easy
>(although Karl Polanyi would point out the extraordinarily complicated and
>convoluted process by which it became "easy") means that it is possible to
>push decisions over resource allocation away from the center and out to the
>periphery of the economy, where the person-on-the-spot has a good chance of
>knowing what the best use is. But if goods are no longer excludible with
>ease, then the decentralized decision making that was one of the market's
>key advantages is no longer possible.
It's unclear to me what this "excludible" idea means. I'm writing to you right now on software that was bought by somebody else.
>Transparent in that everyone is buying commodities of known value and
>characteristics in one-shot transactions--thus minimizing market power. But
>things of value today seem to be becoming less transparent: Microsoft has
>enormous market power over me today by virtue of the large stock of
>documents I have written in Word formats. But as Hal Varian says, "Don't
>despair Brad. Microsoft still faces fierce competition from its own
>installed base."
I think the "installed base" idea points, if obliquely, to the problem people are having judging software (and other Information technology) as a good. Software is primarily marketed in the way that producer goods have been. Makers of producer goods are often rewarded in the equity markets rather than the goods markets. Thus some engineer can give his wares away for free on the internet because he knows that is simply good business - like sending out business plans or doing demos for potential investors. Moreover, software and other information technology have also been public-sector goods created by academics and scientists paid (with scarce resources) by the government and the public.
In any analysis of information technology, I think people forget that while software may sometimes be free, lunch isn't.
>My sense is that Michael and my paper could be made much, much better. And
>so we are trying to think through these issues to decide what we think, and
>then to figure out how to make our case convincing...
>
>
>Brad DeLong
>
>
>-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
>"Now 'in the long run' this [way of summarizing the quantity theory of
>money] is probably true.... But this long run is a misleading guide to
>current affairs. **In the long run** we are all dead. Economists set
>themselves too easy, too useless a task if in tempestuous seasons they can
>only tell us that when the storm is long past the ocean is flat again."
>
>--J.M. Keynes
>-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
>J. Bradford De Long; Professor of Economics, U.C. Berkeley;
>Co-Editor, Journal of Economic Perspectives.
>Dept. of Economics, U.C. Berkeley, #3880
>Berkeley, CA 94720-3880
>(510) 643-4027; (925) 283-2709 phones
>(510) 642-6615; (925) 283-3897 faxes
>http://econ161.berkeley.edu/
><delong at econ.berkeley.edu>
>
peace