Sunday, September 18, 2005

My Shoes Fit Fine

I decided a while ago that my disseration for getting my PhD will involve the Ansari X-Prize as a model for technological growth. I don't plan as of yet to stray from this path but my relatively recent interest in Wikipedia has called into question my chosen path.

One of the core questions is "How do economists decribe phenomena that were once only available as a profit-making opportunity for a firm now made available through a free, decentralized spontaneous order?" Examples include file sharing, Wikipedia and Slashdot--all done by no one individual and all individuals who do it, do it for free.

Well, a Yale law professor beat us to the answer: he calls it peer production.

What a great name, because that's exactly what it is. Equals working together and taking on roles firms once did, producing what firms once produced. But you can tell Yochai Benkler isn't up on his economics, saying "it's an uncomfortable shoe for economists."

Not so. Just because it's done for free doesn't mean economists have trouble working with it. In fact, a lot of this stuff falls under the category of non-rivalrous. My consumption of Wikipedia doesn't prevent you from looking something up (sort of...Wikipedia's having bandwidth trouble due to its popularity but that scarcity is nothing compared to, say, buying a book). If I copy a music file from you, others still can, too. Technology has allowed this non-rivalry to propser on a level unlike ever before. Extra demand costs practically nothing.

The other piece of peer production includes supply items that aren't that scarce. Most people like to talk about stuff they know, thus they are willing to write for free on Wikipedia. When my computer isn't using a big chunk of its computing power, I'm fine with other people using it in the form of SETI or Skype Technologies. There's no cost (indeed, sometimes there are benefits) from producing.

The same can be said of air. For all practical purposes, air is non-rivalrous--when I enter a room you are in, you don't start gasping. It's also plentiful, produced freely by plants in abundent quantities. Thus, it's no wonder we don't pay for air. (Technically, all you need is a lack of scarcity to eliminate prices but I include non-rivalry because it really makes the abundance happen. I may like writing blog articles about economics, but I wouldn't want to write the same thing over and over again, each for a different reader.)

Peer production is a fantastic name for the many free services the Internet is providing. But it's not so new economists have to go back to the drawing board.

EDIT: I was recently informed that Slashdot writers get paid for their services. Thanks to the ever alert Mike for the heads up.

1 comment:

David Gibbons said...

Good discussion - sharing is nothing new! What you call a "non-rivalrous" market, Stephen Covey calls "the abundance principle" - an acknowledgement that "there's enough to go around" - I think it's even possible in rivalrous markets where the incentive to share is to be part of an agregate product that competes in its market.

While sharing is nothing new, we've needed a global commons to support the agregation & trust of peer production - with Web2, it's finally here - the global village marketplace. The "commons based" piece of Benkler's term is critical to its success.

While the products of CBPP are mostly free today, it's not a good way to characterize them - "for fee" CBPP will yield more value for participants and consumers - compare istockphoto to flickr.

I agree that economists will "groc" this - it's the management of company's built on an "aggregator" business model that I feel for - peer producers will replace them - probably within 5 to 10 years.