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Efficiency

While different industries and governments break up the steps of the information production chain in different ways, work by Machlup and Boulding suggests a basic model that includes the following stages: information creation de novo , or through generation or collection , processing algorithmic [computerized] or cognitive [human] , storage, transportation, distribution, destruction, and seeking. Those who think about the informational value of production chains for other types of goods and services often think of each stage of manufacturing and distribution as spinning off an informational "value chain.

Information Economics and Policy - Journal - Elsevier

This emphasis on distinctions among types of information processing as a source of economic value has another consequence, exacerbated by the fact that ongoing technological innovation processes continue to offer new opportunities to entrepreneurs. Though, historically, analysis of functions within the firm were organized around the product, the task, or the job description, economists, led by Roberto Scazzieri, are learning to analyze activities within individual and networked firms in terms of their processes.

Thinking in terms of an information production chain also heightens awareness of the value of information as a resource. In the agricultural and industrial economies, fundamental resources were material. In order to have more whether it was, for example, land, oil, or iron ore , more had to be found physically, or new ways of getting at known resources had to be invented.

In the information economy, however, the discovery of new resources is conceptual.

Information and Communication Technology for Development

Distinctions among types of information processing and the informational states they produce must be understood in a new way so that a new type of product or service niche becomes available. It is this emphasis on thinking as a way of creating new products that has made it possible for so many young people to have succeeded so well in information businesses. In the past it might have taken years for an entrepreneur with a good idea to accumulate the needed capital and capacities, but today, even someone who is very young can come up with a new way of thinking about ways to create, process, distribute, and use information and turn that into a business.

Economics of Information

Creativity is needed in order to form a successful information-based business, but economists are able to offer a number of basic generalizations regarding how best to think about information from a business perspective. These approaches begin by segmenting the market into different niches, each of which can be served with a different product.

Marketing equipment and software for web access to the elderly population that would use it primarily for family correspondence, for example, might stress features that would be very different from the ones emphasized in marketing the same equipment and software to teens who might be more interested in games, music, and other web-based activities. Through product differentiation, different products are developed for each niche.

Versioning, or developing several different versions of the same product, is a popular approach to product differentiation for information goods and services.


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A different version can be developed for each market segment. If such a breakdown is not evident, information economists Carl Shapiro and Hal R. Varian suggest that a business should create three versions because psychologically, the market will at the least break down into those segments that are attracted to each of the extremes and to the central choice. Versions can be distinguished from each other along a number of dimensions, depending on which are most important to the specific good or service involved.

Shapiro and Varian identify the following as possibilities: delay, interface e. The cost of producing information is independent of the scale on which it is produced; that is, the cost of producing information is the same whether it results in one commodity for sale or a million. The difference between the "first unit cost" and subsequent reproduction means that there can be enormous "economies of scale" in the information industries.

This is the reason for the economic appeal of mass market products such as television programs, films, and books to those who produce and sell them.


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The features of information technologies are critical to understanding the economics of information. Two features worth mentioning here are those of "lock-in" and "network externalities. This is also called "path dependence. One way to reduce the risks associated with lock-in is to respond to network externalities i. The greater the market for an informational product, the more likely it will be that users will develop an experiential base that facilitates use, that maintenance systems will be in place, and that complementary goods and services will be available.

Lock-in also facilitates what antitrust law refers to as "tying" and those in the information industries refer to as "bundling"—linking together different informational goods and services for joint purchase and use. One of the discoveries of experimentation within the newly emergent information economy has been that many types of informational goods previously thought of as discrete and unique entities can themselves be "unbundled," or broken down into their parts, for separate sale and use. Vendors of magazines, for example, have realized that in the digital environment they can sell article titles, summaries, texts, references, and tables of contents separately.

A very famous example of unbundling was the result of the insistence by the antitrust division of the U.

Historical development of economics

While ownership of material goods, land, capital, and resources remains important in the information economy, many would say that property rights in information and ideas have become the most important form of property. Intellectual property rights law determines the nature of property rights in information. In the United States , there are several different types of intellectual property. The most important are copyright i.

Policymakers struggle with adapting the intellectual property rights system to the contemporary technological environment. It has been difficult, for example, to figure out just how to deal with computer software from an intellectual property rights perspective.

Should it be covered by copyright or by patent? Which kinds of software programs should be available to everyone and which kinds should have to be purchased? These problems are made even more difficult by the need to reach international agreement on these matters, since the global nature of the information infrastructure means that property rights issues that arise anywhere are global in nature.

While both governments and corporations make policy based on economic analyses of information and the processes by which it is created, stored, distributed, and used, the same matters can be analyzed from political, social, cultural, or ecological perspectives. The greatest value can be derived from economic analyses when they are placed within the wider context. From this point of view, the weaknesses as well as the strengths of the economic approach can be identified.

One of the most striking features of the last half of the twentieth century was the way in which forms of information never before treated as economic goods and services were commodified, or turned into something that could be bought and sold. Examples of such newly commodified forms of information include those that are most private, such as what thoughts are in one's mind, or what chemicals are in one's urine.

They also include those that had historically been most public, such as databases put together by governments in order to serve the public interest or the traditional stories that ensure survival of ancient cultures. The fact that such forms of information can be com-modified, however, does not mean that they should be.

University of Michigan School of Information

Growing numbers of economists, policymakers, and communities have begun to realize that the pursuit of the economic value of information must be balanced with the pursuit of other types of important value. Even when information is treated as a commodity, it remains important in other ways—as knowledge structures and as a constitutive force in society.

Information is critical to the social construction of reality—to the ways in which people together build the social world. Information policy for a thriving political culture and creative expressive environment may have to temper economic profit with other social values.

Even within the economically defined world, the unique characteristics of the network economy make clear that competition is not the only important way of relating to others for long-term economic survival. Ixchel Faniel and Dr. Elizabeth Yakel. Together with partners at The Inter-university Consortium for Political and Social Research, the University of Michigan Museum of Zoology, and Open Context, they study data reuse in three academic disciplines to identify how contextual information about the data that supports reuse can best be created and preserved.

Funded by a National Science Foundation grant, this project and its findings have the potential to benefit society by influencing the method by which students are matched with schools and colleges. Serving as the co-principal investigator on the Archival Education and Research Initiative project, Elizabeth Yakel has helped to establish an unprecedented and exciting collaboration among the leading archival education programs in the U. This project is an interdisciplinary research effort investigating the effects of social identity on lender behavior in an online microfinance community Kiva.

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