The Economics of Social Production Benkler, Chapter 4 Presentation by Mindy McAdams

Productive Behavior Is Changing Why do people participate in nonmarket production? “ Why now, why here?” Is all this sharing efficient ?

Why do people participate in nonmarket production?

“ Why now, why here?”

Is all this sharing efficient ?

What Motivates People to Produce? Titmuss-Arrow debates (blood banks) Extrinsic reasons vs. intrinsic Social reputation or face Loyalty or friendship

Titmuss-Arrow debates (blood banks)

Extrinsic reasons vs. intrinsic

Social reputation or face

Loyalty or friendship

Review: Inputs Needed … for production of information goods today Human factors: Time , creativity, wisdom, knowledge, culture Computers (for production) Networks (for distribution)

… for production of information goods today

Human factors: Time , creativity, wisdom, knowledge, culture

Computers (for production)

Networks (for distribution)

Modularity and Granularity Tasks ( parts of a project) can be broken down into modules The size (length of time needed) can be more or less “fine grained” Granularity is a measure of module size

Tasks ( parts of a project) can be broken down into modules

The size (length of time needed) can be more or less “fine grained”

Granularity is a measure of module size

Amazon’s “Mechanical Turk”

Modularity and Granularity (2) The Web makes modular tasks easy to distribute Also easy to share the outcomes (products) of a difficult task with millions of other people E.g., “The Memory Hole” -- information retrieved from the U.S. government via FOIA requests

The Web makes modular tasks easy to distribute

Also easy to share the outcomes (products) of a difficult task with millions of other people

E.g., “The Memory Hole” -- information retrieved from the U.S. government via FOIA requests

“The Memory Hole” site

Transaction Costs and Efficiency Scarce resource No. 1: Human creativity, time, and attention (rival) Scarce resource No. 2: Computer and communication resources (rival) Public good: Information, knowledge, culture (nonrival)

Scarce resource No. 1: Human creativity, time, and attention (rival)

Scarce resource No. 2: Computer and communication resources (rival)

Public good: Information, knowledge, culture (nonrival)

Transaction Frameworks Markets (buy it on the open market) Firms (get it from within a cartel or group or corporation, to which I belong) Social networks (get it for free from my neighbor) – remember the intrinsic motivations!

Markets (buy it on the open market)

Firms (get it from within a cartel or group or corporation, to which I belong)

Social networks (get it for free from my neighbor) – remember the intrinsic motivations!

Nonmarket Real Estate?

Structures of Transactions Characteristics: Market transaction must be “crisply” delineated Social exchanges are not “crisp” at all Social systems are not cost-free Pricing of human time and talent varies widely across professions and locations

Characteristics:

Market transaction must be “crisply” delineated

Social exchanges are not “crisp” at all

Social systems are not cost-free

Pricing of human time and talent varies widely across professions and locations

Efficiency of Social Sharing Identify the best person for the job May be substantially less expensive Tap into people’s social/psychological motivations Provide a sustainable alternative to ( not a replacement for) market transaction systems Utilize (not waste) human creative capacity

Identify the best person for the job

May be substantially less expensive

Tap into people’s social/psychological motivations

Provide a sustainable alternative to ( not a replacement for) market transaction systems

Utilize (not waste) human creative capacity

When Is It Not Effective? When the means of production required are expensive, or hard to get access to (e.g., large machinery) When the raw materials are expensive, or hard to get access to (e.g., steel) When technology or systems do not permit sharing When people have no time to spare

When the means of production required are expensive, or hard to get access to (e.g., large machinery)

When the raw materials are expensive, or hard to get access to (e.g., steel)

When technology or systems do not permit sharing

When people have no time to spare

Social Production & Market-based Businesses Social production makes use of time and energy that would usually be wasted in a purely market system The effect on market activities is not neutral, however

Social production makes use of time and energy that would usually be wasted in a purely market system

The effect on market activities is not neutral, however

Social Production & Market-based Businesses (2) Social production poses real threats toward (some) market-based activities and enterprises Understand these threats -- and we will understand why certain policies and laws are pushed forward (and who would benefit?) Contracts vs. “cloud” (role of predictions)

Social production poses real threats toward (some) market-based activities and enterprises

Understand these threats -- and we will understand why certain policies and laws are pushed forward (and who would benefit?)

Contracts vs. “cloud” (role of predictions)

Social production changes the system. The more it changes the system, the more important it becomes to the system .

User Innovation Networks Can function entirely independently of manufacturers when: At least some users have sufficient incentive to innovate At least some users have an incentive to voluntarily reveal their innovations, and Diffusion of innovations by users is low cost and can compete with commercial production and distribution -- Eric von Hippel (2002)

Can function entirely independently of manufacturers when:

At least some users have sufficient incentive to innovate

At least some users have an incentive to voluntarily reveal their innovations, and

Diffusion of innovations by users is low cost and can compete with commercial production and distribution

User Innovation Networks If the first two conditions hold but the third (low-cost distribution) does not: A pattern of user innovation and trial and improvement will occur within user networks, followed by -- Commercial manufacture and distribution of innovations that prove to be of general interest -- Eric von Hippel (2002)

If the first two conditions hold but the third (low-cost distribution) does not:

A pattern of user innovation and trial and improvement will occur within user networks, followed by --

Commercial manufacture and distribution of innovations that prove to be of general interest

The End Benkler, Chapter 4 Presentation by Mindy McAdams