Diginomics and an Essay Quandary

This week we have been looking at the difference between private and public goods as part of our exploration of market failure. The standard examples of public goods tend to crop up fairly regularly - national defence systems, the legal system, lighthouse protection, flood defence infrastructure etc. In some industries the distinction between private and public goods is becoming blurred and the rapid expansion of the digital economy has provided an interesting window for discussion on what constitutes a public good in our digital age. I cannot quite decide what essay title to set this week and I am hoping for some inspiration from Tutor2u bloggers!

Don Tapscott, author of Wikinomics is quoted as saying the the digital economy is ‘a “new economy based on the networking of human intelligence.”

How much of the digital economy bears one or more of the features of public goods?

Pure public goods have two essential characteristics: First, no additional costs are involved in providing the goods to an additional person - the goods have zero marginal cost. In this sense they are non-rival in consumption. If I download a song from iTunes, that does not (under any normal circumstance) reduce the songs available on iTunes for others to download.

Second, it is impossible to exclude individuals from benefiting from the goods - public goods have the characteristic of being non-excludable. Non-excludability inevitably creates the problem of the free-rider namely someone who can access and benefit from a good or a service without contributing towards the cost.

One of the questions I have been posing to my students is how do we treat the vast amount of information available on the internet? It this information a public good? When is that information excludable? When can businesses and other organisations earn a commercial rate of return on the information they create? Is there a long term commercially viable future for subscription-based newspapers on the web?

What are the students prepared to pay for on the web? How much are they prepared to pay? Are there things that they expect to be free at the point of use? Wikipedia? Facebook? Google? The BBC iPlayer service? Their daily newspaper?

I will get them to consider the new BBC iPlayer which lets users ‘access television programmes via a PC - the TV programmes are free for UK licence fee payers, at high quality and with no advertising. Once you have downloaded a programme to your computer you have 30 days within which to start watching and seven days to finish watching it.’ And them ask them to compare and contrast it with iTunes. Are they fundamentally different? You pay to download from iTunes, but who should pay for the BBC iPlayer service?

Only this week the BBC announced that it was to start selling some of their television output on iTunes - the BBC reports that ‘the deal makes the BBC the first UK broadcaster to offer programmes via Apple’s download service. Torchwood and Spooks are among the other shows that can now be purchased for £1.89 an episode in the UK.’

And we have learnt too of a new software program created by a Norwegian hacker called Double Twist that will allow the sharing of music bought on iTunes allegedly cracking the digital rights management code which iTunes uses to protect their business from illegal copying and filesharing of music downloaded through the iTunes system.

In a world of digital encryption many non-rival products such as songs, podcasts, pay-per-view sports events, movies, tv shows and other media output can become highly excludable and (ultimately) profitable. Likewise with online gambling and mobile ringtones.

I am not quite sure yet what essay title to set for my students this week? I want something that brings together externalities, public and private goods.

Maybe

Is the output of the BBC a public good? Who should pay for the BBC?

or perhaps

Should Wikipedia be taxed or subsidised?

Any other ideas out there?