The Peculiar Economics of The Peculiar Economics of Scientific InformationScientific Information

Ted BergstromUniversity of California, Santa Barbara

Traditional GoodsTraditional Goods

• With automobiles or shoes, you have to make a new item for each user.

• Average cost is close to marginal cost, with some lumpiness for factory size.

Traditional goods---allocation Traditional goods---allocation and efficiencyand efficiency

How much to produce? – Competitive solution: supply equals demand.

Who gets the output?– Those who are willing to pay price

How are sellers induced to produce? – Equilibrium price covers their costs.

Outcome is approximately efficient.

Information goodsInformation goods

• Scientific information, once produced, can be extended almost costlessly to any number of people.

• With electronic technology, cost of adding marginal user is almost zero.

Cost structure for publicationsCost structure for publications

• First copy cost – Composing text and/or collecting data

– Editing and refereeing

– Type-setting

For paper journals about $100 per page

• Marginal cost per additional user– Paper publishing---printing, handling, postage

– Electronic publishing---almost zero

– For paper journals about $.01 per page per user.

Quantit

Quantity of output

Costs

MarginalCost

Average Cost

Average and Marginal Cost for Publishing

Information Goods Dilemma Information Goods Dilemma

• Since the social cost of allowing access to additional user is zero, efficiency suggests free access.

• But if access is free, how are suppliers repaid for bearing first-copy cost?

Allocation DecisionsAllocation Decisions

• For information goods, as for manufactured goods decisions must be made about:

• How much and what to produce?

• Who gets the output?

• How to get sellers to produce desired amounts?

Common Institutions for Common Institutions for Scientific InformationScientific Information

• “Non-profit” Professional Societies

• University Presses

• For-profit publishers

• Government agencies

Non-profit publishersNon-profit publishers

• Professional Societies societies publish journals, books, data sets

• Usually charge subscriptions to libraries and individuals to cover their costs.– Some make a profit from their journal subscriptions

and use it for other activities • Example: Science AAAS

• University presses, non-profit, enhance prestige of university

For profit publishersFor profit publishers

• Commercial publishers own journals, charge subscriptions to libraries and individuals in order to make profits.

• Since they own the copyrights to the articles in their journal, they have a monopoly on these articles.

• Prices are usually much higher than non-profit journal prices.

Profit and Non-profit publisher Profit and Non-profit publisher pricesprices

Ecology 1.01 0.19 0.73 0.05

Economics 0.83 0.17 2.33 0.15Atmosph. Sci 0.95 0.15 0.88 0.07Mathematics 0.70 0.27 1.32 0.28Neuroscience 0.89 0.10 0.23 0.04Physics 0.63 0.19 0.38 0.05

PricePrice per pageper pageFor-profitFor-profit NonNon-profitprofit For-profitFor-profit Non-profitNon-profit

Price per citePrice per cite

(In(In US $)US $)

Advantages of Professional Advantages of Professional Society JournalsSociety Journals

• Societies lend prestige and attract top authors

• Society journals are non-profit and usually very cheap

• Society journals maintain very high quality standards.

Disdvantages of Professional Disdvantages of Professional Society JournalsSociety Journals

• Societies tend to be conservative. Often slow to adopt new ideas.

• Often controlled by an aging elite.

• Little incentive for officers of society to invest effort.

• Too slow to expand into new fields.

New Economic Journals New Economic Journals • In 1960 there were 30 economics In 1960 there were 30 economics

journals, all non-profit, all cheap. journals, all non-profit, all cheap. • In 1980, 120 economics journals, half In 1980, 120 economics journals, half

for-profit, half non-profit.for-profit, half non-profit.• In 2000, 300 economics journals, 2/3 In 2000, 300 economics journals, 2/3

for-profit.for-profit.• Between 1985 and 2000, top ten for-Between 1985 and 2000, top ten for-

profits almost doubled their pages, top profits almost doubled their pages, top ten non-profits increased 20%.ten non-profits increased 20%.

EntrepreneurshipEntrepreneurship• In the 1970’s economics profession was

growing rapidly. Society journals expanded slowly.

• Specialized field journals were rare.• North-Holland (and other companies

now merged into Elsevier) started about 30 new journals.

• About 12 of these could now be called leading field journals.

Disadvantages of Disadvantages of Commercial journalsCommercial journals

• High prices to libraries mean High prices to libraries mean access only for the wealthiest.access only for the wealthiest.

• Scientists do the work. Publishers Scientists do the work. Publishers collect the money.collect the money.

• Great inefficiency in restricting Great inefficiency in restricting access to science when marginal access to science when marginal cost of access is zero.cost of access is zero.

What about tax-supported What about tax-supported government provision? government provision?

• Government could pay for Government could pay for scientific publication without scientific publication without charge to users.charge to users.

• But the answer is not so simple.But the answer is not so simple. • There remain some There remain some

Tough Tough Questions Questions

• How much to publish?• When to start new

journals?• How to decentralize

and avoid fiefdoms?• How to control quality

without stifling innovation?