Friday, October 26, 2007

Information: The Perfect Economic Good (Part 4)

WHY INFORMATION IS SAID NOT TO BE AN ECONOMIC GOOD

Economic goods, for the most part, take on a tangible quality. In other words, economic goods are easily traded by categorizing their physical attributes. Automobiles are bought and sold as in unit(s). Similarly, in Saudi Arabia, oil is sold by the barrel and in the Midwestern states; corn is bought by the bushel. The intangible nature of information has been a major argument for information to not be considered an economic good by some economists. Thomas Jefferson succeeded in capturing the social benefits that could come from the free dissemination of ideas (information) in that they have properties that are clearly different from other economic goods.

“…If nature has made any one thing less susceptible than all others of exclusive properties, it is the action of the thinking power called an idea, which an individual may exclusively posses as long as he keeps it to himself, but the moment it is divulged, it forces itself to the possession of every one , and the receiver can not dispossess himself of it. …That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made hem, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe…incapable of confinement or exclusive appropriation”
(Lopez 7)

Some say that information is not an economic good because information is not actually consumed and can be reproduced and distributed at almost no cost. (Coiera 215) Many economists have gone as far as to say that since information does not have a precise definition or the ability to be quantified, it has no place in the realm of economic goods. (Bates 380) When looking at the dynamics of information as an economic good, there are many different opinions on if information can be an economic good or not, as noted in the beginning of this paper. Bates states that there are three reasons why information should not be an economic good. The fact that it is very unclear as to if information is a public or private good; the uncertainty of weather advertising could be considered information and that information fails to meet conditions of social efficiency all contribute to reasoning why information is not an economic good. “In Markets for Information Goods”, Hal Varian of the University of California, Berkley, also gives three areas that information causes difficulties in market transactions. Varian address the fact that one must experience information before one knows what it really is because of its intangible nature, as opposed to something that is tangible. Varian goes on the relay the fact that information has an extremely high fixed cost in compilation with a low (marginal) cost to reproduce the same information. Lastly, Varian concludes that information and its goods are nonexcludable. (Varian)

In addition to the aforementioned reasons, some think that information does not qualify as an economic good because of its ease of reproduction. While production costs are typically high and fixed for information products, these products can be copied cheaply (and indefinitely if they are in a digital format). The master copy of a book, movie, or soundtrack is expensive to produce but cheap to copy. Creating and maintaining the information content of a web site is expensive, but making copies of the information for consumers who visit the site costs almost nothing. In economic terms, the marginal costs of reproduction for information goods are low. Worse, initial production costs are “sunk.” In that they are incurred prior to mass reproduction and cannot be recovered in the case of failure. (Coiera 217)

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