Collective purchase of information

[mXSCNT]

Suppose there is a person, Joe, who can get a piece of information through research that has a cost to Joe of $2 million. Suppose there are 100 people, and the information is worth $25 thousand to each of them. The question is, how can the 100 people organize to pay Joe what he needs, so they can get that information?

Consider a simple form of organizing where some of the 100 people form a group G and each person in the group pays Joe $22 thousand, in exchange for which Joe will tell the information to the members of G. If all 100 people joined the group, everyone would make a profit.

However, suppose one of the 100, call her Jane, does not join G. Then if we assume the group forms, Jane can buy the information second hand from one of the members of G. The price to Jane is then determined by competition among the members of G - and since the cost of passing on the information once it has been found is almost 0, the price for Jane will also approach 0. Therefore Jane has a strong incentive not to join G. This works for every one of the 100 people, so no one will join G.

So how can the 100 people organize to pay Joe what he needs, so they can get that information? Is there perhaps some alternate voluntary contract structure that would give people an incentive to join G and contribute their share?

 

[Evo]

Suppose there is a person, Joe, who can get a piece of information through research that has a cost to Joe of $2 million. Suppose there are 100 people, and the information is worth $25 thousand to each of them. The question is, how can the 100 people organize to pay Joe what he needs, so they can get that information?

Consider a simple form of organizing where some of the 100 people form a group G and each person in the group pays Joe $22 thousand, in exchange for which Joe will tell the information to the members of G. If all 100 people joined the group, everyone would make a profit.

However, suppose one of the 100, call her Jane, does not join G. Then if we assume the group forms, Jane can buy the information second hand from one of the members of G. The price to Jane is then determined by competition among the members of G - and since the cost of passing on the information once it has been found is almost 0, the price for Jane will also approach 0. Therefore Jane has a strong incentive not to join G. This works for every one of the 100 people, so no one will join G.

So how can the 100 people organize to pay Joe what he needs, so they can get that information? Is there perhaps some alternate voluntary contract structure that would give people an incentive to join G and contribute their share?

Joe allows the users access to his information but makes it illegal for them to sell, copy, or distribute that information.

 

[mXSCNT]

Even if you do try to solve it with some sort of non-disclosure agreement, how do you protect against cheating? It would be best to have some sort of voluntary economic setup that makes it in each person's best interests not to cheat, without requiring a police force to monitor their every move.

 

[airborne18]

I think the context in this situation is relevant. With software you can use some technologies, but even Microsft grapples with this problem. On the other side is the information time sensitive? Is it a process that is a one time information share?

mXSCNT nails the issue very well. Your business model must assume that you will not capture 100% of the targeted market, and even if they do you may not collect their money.


In the entertainment business you have to go through a studio to have a movie distributed. You can go it without them like Mel Gibson did with the Passion of the Christ, but collecting from the movie theaters is impossible. The movie theatres are large collectives that cheat. ( on several levels, like booking revenue to whichever movie is giving them the better kickback for exceeding a revenue tier ). The only reason major distributors have better success collecting is that they threaten to withhold the next big Julia Roberts film or whoever.

 

[brainstorm]

Joe can post the information on a public internet forum. Then, everyone gets access to his information. The "fittest" will translate the information into successful applications and the benefit to the economy will be such that Joe will prosper more from the advances of his information than if he had tried to control its distribution.

Or do you think that the economy is somehow programmed to maintain permanent levels of misery for people who fail to exercise some form of property-controls over the fruits of their labor? If everyone contributed everything they had to the economy, would it still privilege some and punish others?

 

[mXSCNT]

In Joe's case it costs $2 million to do the research. It won't get done if he doesn't get paid. Segments of the economy that benefit other segments of the economy should have sufficient money poured into them so that they can continue to do so.

Surely there must be a market solution that would let the research happen, some contractual (or legal) device that either protects against "cheating" (re-selling the information to non-members of G) or - perhaps more desirably - provides appropriate compensation to Joe in case of resale.

In a perfect world, if Joe can perform an action that has X net utility to everyone in the world, and it costs Joe Y to perform the action, and X > Y, then Joe should get compensated at least Y but no more than X for performing the action. That ensures that he performs it and the world benefits. To ensure that Joe performs the globally most beneficial action, his compensation in excess of Y (his profit) should be in proportion to X-Y (the gain to the world, minus the cost).

 

[airborne18]

The problem expands when you add the global parameter. Political divisions preclude any single legal protection that could protect any research globally.

Microsoft, the publishing industry, and the entertainment industries have been fighting years to curtail piracy in China and India. It cannot be done.

That is why it always comes back to accounting for cheating in your business model. Return is a function of risk. There is risk in the fact that research does not always yield a positive result. This is why governments fund research projects, so they actually get done. Or they offer incentives for companies to fund the research themselves.

Alternate energy in the US is an example. It is not cost effective but they have forced energy companies to fund it.

Drug companies rely on government funded research to germinate ideas.

The other issue is that even if there were legal protections, you must have the resources to enforce the protections. Trademarks and patents require that a person or company actually fight infringement themselves. And if you do not litigate each offender you risk losing it.

The only way to prevent it, is to create a distribution that can only be used by a single person at a time. Like a laptop. Though it would not prevent person A from using it and then passing it to person B when they are done.

Even governments have problems with this; everyone cheats on taxes, and they factor that into the tax rates.

 

[talk2glenn]

So how can the 100 people organize to pay Joe what he needs, so they can get that information? Is there perhaps some alternate voluntary contract structure that would give people an incentive to join G and contribute their share?

Copyright law, patent law, and contract law

You are correct - once someone has some piece of information, it is practically cost-less to redistribute it, so landlords have an incentive to sell at any price, however low.

In reality, we use property rights law to protect intellectual property creators from the redistribution of their work without consent. This prevents the kind of abuse you describe (a member of group G could not re-sell Joe's work without his express consent, in principle, and Joe would collect a fee on the sale, adding a market normalizing production cost).

 

[loseyourname]

Well, IP law is the obvious means we use to make markets for intellectual goods with public goods characteristics. Information is both nonrival and nonexludable, so to make a market, you have to find some way to make it rival and excludable. In practice, the difficulty presented is the reason we publicly fund research. You can compel people to pay taxes by force of law, so nobody benefits without having to pay. Of course, principles other than the benefit principle are included in tax policy so that, in practice, some people pay quite a bit less and sometimes don't pay at all.