Information Economics

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Summarized by Roger Clarke [1]:

"information economics, adopts assumptions that are very different from those of conventional economics:

  • tradable items are not scarce;
  • one party's possession or use of them does not deprive others of possession and use;
  • information is both an output from, and an input to, innovation processes;

  • information is difficult to appropriate, because:

- tacit knowledge cannot be extracted, reproduced, communicated or assimilated quickly or for low cost;

- codified knowledge may not be reproduced, communicated or assimilated quickly or for low cost;

- knowledge embodied in artefacts is, in many cases, not codified, and hence may not be readily extracted.

These assumptions are attuned to the digital era, and they lead to a very different view of innovation from that of conventional economics:

  • innovation is mostly cumulative, seldom ‘big bang’;
  • innovation is heavily dependent on contributions by users, adopters, suppliers, and competitors;
  • mere imitators, in the absence of ‘value-add’, contribute little, and are ‘free riders’ on the innovator’s investment; but

  • there are many natural protections for innovators, especially the investment and lead-time involved in:

- the development of tacit knowledge;

- its conversion into codified knowledge; and

- development and marketing of competitive products.

The conclusions from an analysis grounded in information economics are therefore fundamentally at odds with those of conventional economics:

  • innovators need only limited assistance to be able to overcome hurdles and achieve returns;
  • even a ‘limited monopoly’ hinders cumulative innovation, and its scope and length must be no more than that necessary to avoid stunting the initial innovation;
  • mere imitators must be punished for misappropriation; but
  • encouragement must be given to:

- investigators of innovations;

- enhancers of innovations;

- extenders of innovations; and

- developers of competing innovations.

More Information

DM Lamberton, Economics of Information and Knowledge : Selected Readings, (1971); and GC Dempsey, “Revisiting Intellectual Property Policy: Information Economics for the Information Age”, 17:1 Prometheus 33 (1999).

Read the full essay Business Models to Support Content Commons


  1. JP Barlow, “The Economy of Ideas: A framework for patents and copyrights in the Digital Age”, Wired 2.03 (March 1994), @
  2. E Dyson , “Intellectual Value”, Wired 3.07 (July 1995), @
  3. K Kelly, “The Economics of Ideas”, Wired 4.06 (June 1996), @