Category Archives: Information Goods

Another rant about blockchain

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Kai Stinchcombe writes,

peer-to-peer interaction with no regulations, norms, middlemen, or trusted parties is actually a bad way to empower people.

…A lawless and mistrustful world where self-interest is the only principle and paranoia is the only source of safety is a not a paradise but a crypto-medieval hellhole.

Read the whole thing. Suppose that the population that is eager to adopt blockchain consists mostly of people who are really annoyed by existing laws and business practices. Dealing with such a population on a regular basis is probably not a good way to enjoy low-risk, trouble-free interactions.

On the other side, the blockchain Kool-Aid includes stories like this:

The trend toward blockchain agriculture promises to make each step of growing and distributing food simpler. It will offer all parties involved a single source of truth for the agriculture supply chain. In this article, we’ll cover four key ways that blockchain is changing agriculture.

I take Stinchcombe’s side on this one. Note that I scheduled this post a week ago, before Tyler linked to the same piece.

Aggregation, not paywall AI, is the answer

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Shan Wang writes,

The [Wall Street] Journal has found that these non-subscribed visitors fall into groups that can be roughly defined as hot, warm, or cold, according to Wells. Those with high scores above a certain threshold — indicating a high likelihood of subscribing — will hit a hard paywall. Those who score lower might get to browse stories for free in one session — and then hit the paywall. Or they may be offered guest passes to the site, in various time increments, in exchange for providing an email address (thus giving the Journal more signals to analyze). The passes are also offered based on a visitor’s score, aimed at people whose scores indicate they could be nudged into subscribing if tantalized with just a little bit more Journal content.

Pointer from Tyler Cowen.

I think that the future of paywalls is aggregation, not artificial intelligence. Spotify is an aggregator. It works better than having individual recording companies set up and manage their own paywalls. Maybe Amazon Prime will become a news aggregator. It already has access to the WaPo (gee, I wonder how it got that?). Facebook is a news aggregator.

The WSJ should get together with the NYT and other major publications to create a news aggregator. I have been saying that for twenty years, but the legacy media won’t do it. Pretty soon they won’t have much choice. Aggregate or be aggregated.

John Perry Barlow has died

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Here is a brief obituary. Among other things, in 1994 he wrote The Economy of Ideas, an essay admired by, among others, Hal Varian. It begins,

I refer to the problem of digitized property. The enigma is this: If our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can’t get paid, what will assure the continued creation and distribution of such work?

I boiled this down to: information wants to be free, but people need to get paid.

Consumers’ Surplus and well-being

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Another paper from the AEA session on measuring well-being. The abstract of the paper by Erik Brynjolfsson, Felix Eggers, and Avinash Gannamaneni says,

In principle, changes in consumer surplus (compensating expenditure) provide a superior measure of changes in consumer well-being than GDP and metrics derived from it, like productivity, especially for digital goods. In practice, consumer surplus has been difficult to measure. We demonstrate the potential of massively scalable online Single Binary Discrete Choice experiments for addressing this issue. These experiments provide a measure of consumers’ willingness to accept compensation for losing access to various digital goods and thereby estimate the changes in consumer surplus from these goods. Drawing on several hundred thousand online experiments, our results indicate that digital goods have created substantial gains in well-being which are largely missed by conventional measure of GDP and productivity, and suggest that our approach can be scaled up to a broader set of goods and services. Two limitations of our methods are that they are much less precise than changes in GDP and they suffer from hypothetical bias. We show how much of an improvement in precision can be achieved with larger sample sizes and demographic controls and we document the direction and magnitude of hypothetical bias by conducting incentive compatible experiments with a smaller group of subjects. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, changes in consumer surplus and other new measures of well-being derived from these online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts.

Should algorithms receive patents?

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David Edwards wrote,

the distinction between discovery and invention should be eliminated. This would allow the patent incentive to motivate exploration for previously unknown useful forms of bacteria, plants, animals, materials, molecules, atoms, particles, etc. Previously unknown mathematical formulas and laws of nature should also be patentable. Since patents only give control over the commercial applications of his discovery or invention to the patentee, granting patents on mathematical formulas, laws of nature, and natural phenomena would have no negative side effects on pure science. The economic stimulation of pure science that would be provided by such patents is particularly important today as the traditional economic support of pure science, namely university faculty positions and government grants, are in decline. For the society as a whole, the positive economic effects of such extended intellectual property rights would be quite substantial.

He sent me the article because I wrote about the importance of the intangible economy. However, just because algorithms and other ideas are important does not mean that we should wish to run them through the patent system.

My intuition is that intellectual property should be protected only when the marginal cost to create it is high relative to the ability to profit from it. I think those cases are rare with respect to algorithms. So I am afraid that I disagree with the paper.

Sports and Media

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Ben Thompson writes,

The truth, though, is that in the long run ESPN remains the most stable part of the cable bundle: it is the only TV “job” that, thanks to its investment in long-term rights deals, is not going anywhere. Indeed, what may ultimately happen is not that ESPN leaves the bundle to go over-the-top, but that a cable subscription becomes a de facto sports subscription, with ESPN at the center garnering massive carriage fees from a significantly reduced cable base. And, frankly, that may not be too bad of an outcome.

Pointer from Tyler Cowen.

Read the whole post, which post surveys the media landscape. I used to pontificate on the topic, but now I am old and out of touch. The best way to forecast the media business is to observe young people. Years ago, I saw data that showed that young people were subscribing to newspapers at much lower rates than their parents had at similar ages. It was not hard for me to extrapolate from that.

I am surprised by Thompson’s optimistic outlook for sports. I think that pro sports on TV historically worked as a sort of focal point or lowest common denominator in households where the TV is always on in the background. People want something else to do while they’re chatting, so they turn on the game.

Nowadays, the TV is not the universal background noise. People have phones to keep them occupied. If you are going to watch sports, you have to be committed to it, and my sense is that young people are not as committed to sports as they used to be. Gambling on games, including fantasy sports, generates some commitment, but that is more of a niche than the sort of mass market that sports used to represent.

In recent years, when I have gone to baseball games, young people have been discussing homework, taking selfies, and watching the Jumbotron. I wonder if the passion for sports is something that is gradually fading away with the younger generation.

If ESPN is the future of TV, then TV may not have much of a future at all.

Why (some) Governments Protect Intellectual Property

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Sinclair Davidson and Jason Potts write,

We propose a new model of intellectual property based on the stationary bandit model of government. We argue that new ideas—of the sort that become patents, copyrights and trademarks—emerge as economic rights, born global as it were into a world of roving bandits. They seek protection from a stationary bandit, who extracts tribute in return. The key insight of our new model, however, is a sharper distinction of who those bandits are.

…vulnerable subjects seek protection for their private economic property from the banditry of other governments, by registering their property with their own government, whom they trust to be powerful enough to protect it as they peacefully engage in trade and commerce throughout the world.

In return, they grant that government an exclusive right to exploit them through perpetual taxation of the property.

Pointer from Scott Sumner. This theory suggests that the country that ends up with the largest sector of copy-able products (pharmaceuticals, movies, novels, etc.) will be the country with the largest navy. Hmmm…

An Outbreak of Laziness, or ?

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Andre Boik, Shane Greenstein, and Jeffrey Prince write (the link goes to an ungated but outdated version),

We find that higher income households spend less total time online per week. Our results suggest that a household making $25-35K a year spends 92 more minutes a week online than a household making $100K or more a year in income, and differences vary monotonically over intermediate income levels. Relatedly, we also find that the level of time on the home device only mildly responds to the menu of available web sites and other devices – it slightly declines between 2008 and 2013 – despite large increases in online activity via smartphones and tablets over this time. At the same time, the monotonic negative relationship between income and total time remains stable, exhibiting the same slope of sensitivity to income.

Think of allocating your time among three activities: work, online leisure, and off-line leisure (plus housework). Are we seeing some households choosing to work less and instead consume more online leisure (thus earning less income), or are we seeing households who earn less per hour worked finding offline leisure activities too expensive (Tyler Cowen seems to think it’s the latter).

Prizes Have Not Worked Well

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Timothy Taylor quotes from a paper by historian B. Zorina Khan.

industrial prizes faltered in part because of their lack of market-orientation, and even the democratic nature of economic institutions in the United States could not overcome such drawbacks in administered prize systems.Judges had to combine technical and industry-specific knowledge with impartiality, but even the most competent personnel could not ensure consistency; decision-making among panels was complicated by differences in standards, interpretation, capture, and risk-aversion. Such difficulties tended to lead to haphazard decisions, or were often overcome by simply making the award to the person or the firm with the most established reputation. Juries were not immune to the effects of outright bias, capture, cognitive dissonance, lobbying, and “marketing.” Prizes tended to offer private benefits to both the proposer and the winner, largely because they served as valuable advertisements, with few geographical spillovers. Winners of such awards were generally unrepresentative of the most significant innovations, in part because the market value of useful inventions would typically be far greater than any prize that could be offered by private or state initiative.

Suppose that the commercial value of an idea is highly uncertain before it has become embedded in a business product or service. This leads to what we might call market-valuation errors. You can think of many examples of companies that have come out with products that they thought would be successful but failed to excite consumers.

With a prize fund, these market-valuation errors are borne by whoever puts up the prize fund. For example, if the government creates a prize fund for somebody who develops a better wind turbine, but the wind turbine still fails to penetrate the market, then the taxpayers take the hit. Instead, if the wind turbine inventor is given a reward in the form of a patent, then it’s the inventor who suffers if the turbine fails in the marketplace.

Going from patents to prizes serves to separate two functions: guessing the value of a potential invention; and coming up with the invention. Separating those two functions may not be such a good idea.

Adam Smith raised this concern. See David Henderson’s response to Taylor’s post. Henderson writes,

Essentially, the problem is a central planning problem. A government that gives prizes has to know what to give prizes for. It could give a big prize for something that matters little or a small prize for something that matters a lot. It’s hard to know in advance. Patents, as Smith points out, solve that problem.

As Henderson indicates, patents are problematic also. They are susceptible to other forms of errors by governments.

I Think He Wants Betting Markets in Non-profits

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Neerav Kingsland writes,

it is important for there to be a public, meaningful signal against efforts that are likely to fail.

He laments that there is no way to short a non-profit. But you can think of a short sale as a side bet. As Robin Hanson has repeatedly emphasized, betting markets in opinions can be used to extract information of the sort that Kingsland discusses. You could set up a betting market in which participants wager on the likely success of non-profit initiatives. Of course, whether managers of an initiative would heed the opinion of the betting market is another matter.