Category Archives: Information Goods

Have property rights gotten complicated?

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Russ Roberts talks with Michael Heller and James Salzman, co-authors of a book on issues with property rights. Roberts says,

I think most human beings think about the historical nature of property rights: something’s either mine or it’s not. And, that’s like my house, as long as I don’t have a mortgage. But, we tend to think of property rights is on or off: one, zero. And, what your book does beautifully is explore the rich nuance and subtlety of property rights, currently and in history.

For a number of reasons, I think that property rights are much more complicated now than they were two hundred years ago.

1. Because we are more likely to live in dense urban settings, what you do with your land affects me in many more ways than if we lived on separate farms or in a small village.

2. A lot of wealth now is intangible. That makes patents and trademarks and business rules more important. My claim to own a machine or a piece of land is pretty easy to verify. Intellectual property creates a lot more ambiguity.

You have to use force to take tangible property from me. But you may not have to use force to take intellectual property. Indeed, I may have to initiate the use of force (perhaps with the government on my side) to stop you from using my ideas. So libertarians do not necessarily support intellectual property. As David S. D’Amato put it,

Libertarians are seldom indecisive or wishy‐​washy on the question of intellectual property. We tend either to favor or oppose it strongly, depending on whether we see it as a necessary and proper guardian of legitimate individual rights, or a precarious and inherently unjust form of coercive monopolism. In an era when so much of what is even considered free competition depends on our answer to the intellectual property question, it is important to grapple with the theoretical work that was handed down to us, regardless of our ultimate stances.

My personal view is that information wants to be free, but creators need to get paid. As I see it, not all types of creations should be compensated in the same way. So I don’t take a simple, binary view of intellectual property.

3. There is much more specialization and trade than there was two hundred years ago. That means we depend on many more strangers than was the case back then. As a consumer, when I buy something, I believe–correctly or not–that various rights have been conferred to me. When I rent a bicycle, if the chain breaks when I am ten miles down the trail, do I have the right to be rescued by someone from the bike rental shop? If a drug causes a harmful side effect, do I have a right to compensation from the drug company? from my doctor? from the doctor’s malpractice insurance company? from my own health insurance?

4. Studying the “terms and conditions” for all of the software and web site subscriptions I have purchased probably would take me more than a lifetime. Like most people, I don’t do it. But that means I probably don’t really know what my property rights are.

Overall, if you were a New England farmer in 1800, you could go for months, perhaps your entire lifetime, without encountering a situation in which you were unsure about who owned what. Everything on your land you could sell or give away at will. Today, every time you use your smart phone you probably are encountering a situation in which property rights are unclear. Who owns your email archive? Your location data? Is an app that you “own” something you can sell of give away at will?

Think about all this. Clear, straightforward property rights are probably a necessary condition for a libertarian utopia of minimal government and maximum voluntary exchange. 21st century society requires a lot more governance (not all of which needs to come from government. Social media can censor politicians as well as the other way around).

And if you believe that blockchain by itself can settle all of these property rights issues, you have some work to do to persuade me of that.

Unwalling the gardens

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A reader points me to something that Gray Mirror wrote last year.

Let’s call a protocol transparent if anyone can send or read a message in the protocol. In a transparent protocol, the whole public has both the technical information and the legal right to encode or decode messages in a transparent protocol, at every layer of the protocol stack. The opposite is opaque.

His proposal is to require that protocols be transparent. Anyone should be able to write an application that uses the protocol. This would change Facebook from a walled garden to an open database.

Here is an example, using Fantasy Intellectual Teams. Suppose that I maintain the definitive database for keeping score, and a schematic of the file format looks like this:

var teams = [
{
teamname: “Clan Graham”, owner: “Geoff”, players:
[
{name: “Joe Rogan”, Bets: 0, Memes: 1, Steelmans: 0},
{name:”Matt Ridley”, Bets:0, Memes:2, Steelmans:0}
]
},

{teamname: “Tim the Enchanter”, owner: “Jon T”, players:
[
{name: “Tyler Cowen”, Bets: 1, Memes: 3, Steelmans:2}
]
}
]

In the walled-garden model, only I know the file format, and thus only I can write reports based on the data. In a transparent-protocol model, pretty much anyone who has ever composed code could write reports based on the data. Gray Mirror would force me to use the transparent-protocol model. As an aside, if a team owner wants to keep his name secret, this is something that could be accommodated in the transparent-protocol model. Data security and protocol transparency are different features, and they are not incompatible.

In the walled-garden model, since I control the reporting, I can sell advertising to be placed on the reports. In the transparent-protocol model, I would have to sell subscriptions to the database. The transparent-protocol model still allows me to have a monopoly, but it strictly limits the uses that I can make of that monopoly.

Would you go to the trouble to create the data protocol for Facebook and, most importantly, undertake the effort to induce people to enter data into your database, if you knew that sooner or later you would be forced to make the protocol transparent? If the answer is “yes,” then Gray Mirror’s suggestion might be a good one.

How journalism responded to the Internet

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Martin Gurri writes

The amount of information in the world was, for practical purposes, infinite. As supply vastly outstripped demand, the news now chased the reader, rather than the other way around. Today, nobody under 85 would look for news in a newspaper. Under such circumstances, what commodity could be offered for sale?

During the 2016 presidential campaign, the Times stumbled onto a possible answer. It entailed a wrenching pivot from a journalism of fact to a “post-journalism” of opinion—a term coined, in his book of that title, by media scholar Andrey Mir. Rather than news, the paper began to sell what was, in effect, a creed, an agenda, to a congregation of like-minded souls.

Unbundling or rebundling?

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Allison Schrager writes,

Up until fairly recently, we consumed many goods and services bundled together. Your airline ticket price included a meal and checked luggage. Your cable bill included hundreds of channels. A newspaper subscription offered content from many journalists. But changing economics and technology have made bundling less necessary and attractive—at least in the short run. A bundled service offers lots of variety for a fixed price, but you end up paying for things you don’t want. Now, when we book flights online, we can see other airlines’ prices for identical routes; an airline can appear more competitive by breaking out different services. Streaming platforms mean that we no longer must pay for cable channels we don’t watch. And now, members of the media whom colleagues deem “problematic” don’t have to tolerate a hostile newsroom; they can send out an email newsletter or broadcast a podcast to their audience and collect money directly.

I don’t think that unbundling is the endgame in music, journalism, or punditry. Yes, we have pretty much seen the end of bundling music from physical forms, such as a vinyl record or a CD. And we are pretty near the end of the unbundling of the written word from physical forms, such as magazines and newspapers. But as Allison points out, only a few high-profile writers can expect viable subscription revenue in a totally unbundled world. If nothing else, what Clay Shirky called the mental transactions costs make people unwilling to pay for all the content they might like on a case-by-case basis.

Instead, I return to a prediction I made twenty years ago.

For an economic model, I continue to recommend the idea of “clubs.” A club would provide content aggregation, recommendation, and annotation services. Journalists would be paid by clubs, rather than by individual publications. For a consumer, joining a club will provide access to value-added services relative to online content.

Where we something that most closely resembles the club model I had in mind is in the video streaming world. Netflix, Amazon, etc.

If my prediction eventually holds, most writers, will not be able to make it on their own. Instead, they will be bundled together, just not in the traditional magazine or newspaper format. I think that once the club model gets going, the superstars will be recruited by the clubs for competitive purposes.

Concerning intellectual property

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Brink Lindsey and Daniel Takash write,

Eliminate patents for software and business methods. One crucial requirement for any workable system of property rights is the ability to define boundaries. The expansion of patent law in recent decades to include software and business methods runs afoul of this requirement. These patents currently make up a substantial fraction of all patents granted, and instead of serving to encourage innovation they have created a legal minefield that innovators now have to cross.

This proposal sounds sensible, as do the others that they offer.

When I think about this issue, I think in terms of two questions about the originator (who claims intellectual property in our current system) and the follower (who is prevented from using the originator’s work).

1. How much effort did the originator have to go through? In the case of pharmaceuticals, these days the effort required is usually a lot. In the case of new business methods, more of the effort goes into the execution than into the conception.

2. How much effort did the follower not have to undertake because of what the first inventor did? Again, the case of a pharmaceutical, this is a lot. In the case of a new business method (Amazon’s “one-click ordering” is a widely-used example), I would say not so much.

I guess the ideal for me would be if the follower had to compensate the originator according to the answers to these two questions.

Marc Andreessen is a fast talker

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and I really enjoyed listening to his half-hour podcast about the Internet’s past and the outlook for cryptocurrencies.

Essentially everything he says about the Internet explosion in 1993-1995 resonates with me, especially his discussion of how hard it was for an ordinary civilian to get Internet access in 1994.*

When he talks about what it was like trying to persuade legacy financial firms to use the Internet, it also resonates.**

I also agree that the advertising model is the cause of much bad juju on the Internet.

But I hear Marc as saying (and he talks very fast, so I may have this wrong) that cryptocurrencies will enable micropayments, and micropayments will enable content providers to ditch the advertising model. If that is indeed what he is saying, then I disagree. I think that the main barrier to micropayments is not technological. It is psychological–what Clay Shirky dubbed mental transaction costs. I have talked about this several times, for instance in this essay.

*I quit my job at Freddie Mac launched a commercial web site in April of 1994. I did so by going to an Internet publishing start-up called Electric Press, where at their site one of the partners taught me the rudiments of HTML–rudiments being pretty much all there were at that point. He coded up the first pages I wanted for my site, registered the domain name, set up the server, and loaded the pages onto the server.

Then I wanted to be able to access the Internet myself, so that I could edit pages, add new pages, and so on. Previously, I had only accessed it through online services like AOL which did not have web access. There was a service you could use through a library that offered a text-only browser called Lynx, but I had only seen a graphical web browser twice:
once when some of us at Freddie went to visit a General Electric research site and while the higher-ups were having a pow-wow a tech guy took me to the basement to show me Mosaic (developed by Marc) and the second time was when I got my training session at Electric Press.

Electric Press was not in the business of helping individuals get on the Net, so they referred me to an Internet Service Provider, called us.net. They sent me a floppy disk. I could not install that software properly. So I called us.net, and the President of that small start-up (he may have been the sole employee) drove to my office during a torrential downpour helped me load the software on to my PC.

Rather than take this as a clue that the Internet was not for ordinary civilians, I kept at it, waiting for the day when getting on the Internet would be easy. That day arrived in August of 1995, when Microsoft finally released Windows 95 (which they had been promising since 1994) and America Online added the Web to their Internet offerings. That is when the traffic on my web site went from a trickle to a tsunami.

**I convinced a large mortgage banker to put up some pages on my site. They sent me a draft contract which read, in part, “Arnold Kling, who owns a service known as the Internet. . .” If only.

Too little, too late?

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In the WSJ, David Pierce writes,

For $10 a month, you get access to what Apple says is more than 300 titles. I counted 251 magazines in the library, from “ABC Soaps in Depth” to “Zoomer.” Every popular magazine I looked for was available in some form. Besides Wall Street Journal articles, the rest of News+ includes content from the Los Angeles Times plus digital publications like Vox and theSkimm.

This sounds like what I argued for 18 years ago.

Pierce concludes,

As it is now, though, News+ feels like a product several years too late.

Tax robocalls?

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Roger Meiners proposes

Call it the Penny for Sanity Tax: a 1-cent tax on every call made. Fifty billion robocalls would cost $500 million—a powerful incentive to stop.

I would add that you could have a feature where the recipient of a call could press a button to forgive the tax. That way, the tax would fall even less on legitimate callers.

But my guess is that the cost of collecting the tax would be prohibitive. Many robocalls originate in foreign countries. I saw a story in the WSJ about the FCC’s collection rate on fines that it has levied against known violators of the law. It’s pathetically low.

My suggestion would be to offer a prize for a firm that develops an effective phone spam filter. I might define an effective spam filter as one that does not delay calls for more than 1/4 of a second, that filters out at least 95 percent of robocalls that get through existing filters (such as they are) at major phone service providers, and that filters out no more than 1 out of 1000 legitimate calls.

Maybe the government could offer the prize. Or maybe someone will just put up a GoFundMe and see if those of us who hate robocalls will put money where are mouths are.

Estimating consumers’ surplus from information goods

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Erik Brynjolfsson, Avi Gannamaneni, and Felix Eggers have a paper on the topic. From the abstract:

We explore the potential of massive online choice experiments to measure consumers’ willingness to accept compensation for losing access to various digital goods and thereby estimate the consumer surplus generated from these goods. We test the robustness of the approach and benchmark it against established methods, including incentive compatible choice experiments that require participants to give up Facebook for a certain period in exchange for compensation. The proposed choice experiments show convergent validity and are massively scalable. Our results indicate that digital goods have created large gains in well-being that are missed by conventional measures of GDP and productivity.

Pointer from Tyler Cowen.

Based on their powerpoint, I gather that the method is something like this.

1. Ask a user of, say, Facebook how much they would need to be paid to give it up for a month.

2. If they say they would give it up for $25, tell them to do it.

3. If after a month they have not used it, give them $25.

The methods that they use are really interesting, but I have doubts about the approach. I think dollars are too abstract. I would like to see a lot of “give up X or give up Y” choices offered. The authors do some of this and apparently it confirms their findings.

The values that the authors get are really high. If the median Facebook user gets over $40 a month in value from it, then Facebook is leaving a fortune on the table by not having a subscription service. Yes, they have to be careful that charging a subscription price could drive some customers away, lowering the value of the service to other customers, but the “freemium” model could be used to address that. That is, let anyone join for free, but give more privileges to subscribers.

Finally, note that if I pay less for Google Maps and other digital services than I would be willing to pay, I also pay more for my smart phone, home Internet connection, and wireless service provider than I would if all I were getting were just plain phone service. In other words, some of the “consumer’s surplus” from digital goods goes to Verizon and Apple as revenue, not to consumers.