Information Economics

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

Read the full essay Business Models to Support Content Commons