12 Economics of Information

Shyama Rajaram

I. Objectives

This lesson is written with the following objectives:

•      To bring about a clarity in understanding the concept of economics of information.

•      To examine the effects of information and information systems on economy.

•      To view information as a commodity.

•      To understand the characteristics of information.

•      To chart out the economic properties and economic role of information.

•      To recognize information services as products

II. Learning Outcomes

On completing this module you should have an understanding of the economics of information (i.e. economics of information and information products) as also the role of information in the economy of a nation / organization (i.e. information as an economic factor. Also a general idea of what constitutes the information industry should be formed on completion of this module

III.      Structure of the Module

1.  Introduction

2.  Concept: Economics of Information

3.  How information and information systems affect economy

3.1. The economic effects of Information Technology (IT) on organizations

3.2. Electronic markets

3.3. Network effects

3.4. Social Media

3.5. Informational characteristics of markets

4.  Information as a commodity

4.1. What is a Commodity

4.2. Characteristics of Information

4.2.1. Information is expandable

4.2.2. Information is compressible

4.2.3. Information is substitutable

4.2.4. Information is transportable

4.2.5. Information is diffusive

4.2.6. Information is sharable

4.3. Economic properties of information

4.4. Economic role of information

5. Information Services as Products

5.1. Offline information services as products

5.2. Online scholarly database services as products

5.3. Electronic information services for professional purposes as products

5.4. Electronic information services for social purposes as products

5.5. Business information services as products

5.6. Financial information services as products

5.7. E-mail services as products

5.8. Electronic information storage services as products

5.9. Real Time information services as products

5.10. Audiotex services as products

5.11. Videotex services as products

6.  Summary

7.  References

1.    Introduction

The extensive development of informational technologies, the emergence of information networks, the increasing reliance of the contemporary society on collecting, processing and distribution of information for its economic health, a paradigm shift to information work as a predominant occupation have led to the conception of information as a primary source of income. Branscomb (1994) while talking about the value of information states:

Information has always been a valuable asset to those who possess it. Where the fish were biting was an important piece of information to tribal societies. They shared this information because it was in the interests of the community to do so, and the catch was shared by all members of the tribe. Today where the fish are biting is a carefully guarded secret by fishermen who store the longitude and latitude in the memories of their Loran equipment on their fishing boats. Their boats are also equipped with satellite antenna in order to obtain access to the remote sensing satellite data that discloses where the schools of fish are concentrating and what prices are offered for their catch on the global markets. (Branscomb, 1994)

Thus, collection of information and construction of knowledge become an economic activity that provides for sound decision making. We are living in an increasingly complex and dynamic world where information is becoming very important for human as well as technical development. Let us first try to understand the concept of economics of information.

2.    Economics of Information:

The discipline of Economics is divided into two general fields, viz., microeconomics and macroeconomics.

Microeconomics: Microeconomics analyzes the economic behaviour of individual units which may be persons, households, firms or industry in an economy. The attempt is to understand the decision-making process of these individuals when they go about allocating their limited resources. It also attempts to study the factors that affect economic choices of these individuals and the effect of changes in these factors on their decision making; further, the corresponding change in the markets brought about by these choices and also how prices and demand are determined in the markets.

Macroeconomics: Macroeconomics deals with the behavior and performance of an economy as a whole. Here the focus is not on individual behavior and decision making but on the aggregate changes in the economy. Thus, it is concerned with the study of unemployment, growth rate, gross domestic product, inflation, price indices, savings, consumptions, investments, international trade, international finance etc. Besides aggregate indicators, macroeconomics also analyzes the microeconomic factors that influence the economy. Thus, the factors that are studied in macroeconomics and microeconomics may influence each other. For instance, unemployment in the economy will affect the supply of workers in individual industries.

Economics of Information: When we are talking about Economics of Information it concerns microeconomic theory. It assesses the role of information in all economic activities as a factor of production, growth and development. The noted economist and Nobel laureate Joseph E. Stiglitz has clearly explained the concept of information economics in his article titled “Information” in The Concise Encyclopedia of Economics. Information economics according to Stiglitz (2008), “has explored the extent to which markets and other institutions process and convey information. Many of the problems of markets and other institutions result from costly information, and many of their features are responses to costly information”. In this article he enlightens how information economics helps explain economic volatility. He points out while efficiency wage theory may explain persistence of unemployment; it is information economics that explains why employers pay higher wages to workers. As monitoring the information about the productivity of the employees is costly, the employers pay them more as an incentive not to shirk work. The use of credit rather than equity as a source of finance for new investment and the widespread occurrence of credit rationing happen because of costly information. The shareholders find the information about what management is doing very costly and thus are wary of buying more shares. 

Stiglitz (2008) clarifies three other market responses to costly information.

• Firstly, reputations and brand names are very important in markets. Both workers and firms should have incentives to maintain their reputations. Any negligence on their parts could dent their reputations; so firms need higher profits and workers higher wages. Although this response was long recognized but, is explained only by information economics.
• Secondly, he points out that ‘advertising’ is a response to imperfect information. “Because information is costly, both suppliers and demanders must spend resources to acquire and disseminate information. Just as customers search for the lowest price and workers search for the highest wage, stores advertise to provide information to potential customers concerning the location, price, availability, and qualities of their products”.
• Thirdly, he clarifies the existence and role of middlemen as market response to costly information. Middlemen are not villains or robbers. “But middlemen provide a vital function in ensuring that goods are delivered where they are wanted”. So they are people with ability and information to ensure efficient allocation of economy’s resources.

Definition: According to Wikipedia (2013), “Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics. It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions. These special characteristics (as compared with other types of goods) complicate many standard economic theories”.

Subfields and related fields: The significant subfields of information economics are information as Signal and Information Asymmetries. A related field is Game theory.

Information Asymmetries: A situation of asymmetric information happens when in a transaction one party has more knowledge than the other. Often the seller knows more than the buyer, although in some situations the reverse can also take place. For example, while taking a life insurance the buyer knows more about his health status than the seller. Such imbalance of power in transactions can sometimes lead to market failures. Thus, Information Asymmetry studies the decisions in such transactions.

Signal: The signaling model was proposed by Michael Spence another economist and Nobel laureate. According to him employees signal their respective skills to employers by acquiring a certain costly degree of education and employers pay higher wages to such more educated employees because they know that only educated employees will go for such higher education. Such signals resolve the information asymmetry in the job market where employers know less about the prospective employees.

Game theory: Game theory is a related field of Information Economics. Game theory studies strategic decision making. It is also known as interactive decision theory as it concerns logical and rational decision making achieved through conflicts and cooperation. Besides many types of games, Game theory consists of games of perfect information, imperfect information, complete information or incomplete information. A game consisting perfect information is a situation where all players know the moves previously made by all other players like a game of chess where all the players can see the pieces constantly on the board. Many card games consist of imperfect information as each player’s cards are hidden from other players. A game consisting complete information is a situation where each player may not know what action has been taken by the other but is privy to the strategies and payoffs available to the other players. If information is not complete, then the individual players would find it difficult to predict the effect that their actions would have on the other players. One of the theoretical pre-conditions of an efficient perfectly competitive market is complete information. Theories of information economics are often tested through game theory methods.

The example below will help in understanding much more clearly the concept of Economics of Information, which is also referred to as Information Economics.

Evans and Wurster (1997) have given an excellent example while making a point about a fundamental shift in the economics of information. They perceive a shift which is not so much because of a specific new technology but because of a new behavior of millions of people who have access to electronic communications. This connectivity according to them is the most important wave in the information revolution that has transformed the business landscape. The example cited below will make it easy to understand the economics of information.

Early signs of this change are not hard to find. Consider the recent near-demise of Encyclopedia Britannica, one of the strongest and best-known brand names in the world. Since 1990, sales of Britannica’s multivolume sets have plummeted by more than 50%. CD -ROMs came from nowhere and devastated the printed encyclopedia business as we traditionally understand it.

How was that possible? The Encyclopedia Britannica sells for somewhere in the region of $1,500 to $2,200. An encyclopedia on CD-ROM, such as Microsoft Encarta, sells for around $50. And many people get Encarta for free because it comes with their personal computers or CD-ROM drives. The cost of producing a set of encyclopedias—printing, binding, and physical distribution—is about $200 to $300. The cost of producing a CD-ROM is about $1.50. This is a spectacular, if small, example of the way information technologies and new competition can disrupt the conventional value proposition of an established business.

Imagine what the people at Britannica thought was happening. The editors probably viewed CD-ROMs as nothing more than electronic versions of inferior products. Encarta’s content is licensed from the Funk & Wagnalls encyclopedia, which was historically sold in supermarkets. Microsoft merely spruced up that content with public-domain illustrations and movie clips. The way Britannica’s editors must have seen it, Encarta was not an encyclopedia at all. It was a toy.

Judging from their initial inaction, Britannica’s executives failed to understand what their customers were really buying. Parents had been buying Britannica less for its intellectual content than out of a desire to do the right thing for their children. Today when parents want to “do the right thing,” they buy their kids a computer.

The computer, then, is Britannica’s real competitor. And along with the computer come a dozen CD-ROMs, one of which happens to be—as far as the customer is concerned—a more-or-less perfect substitute for the Britannica.

When the threat became obvious, Britannica did create a CD-ROM version—but to avoid undercutting the sales force, the company included it free with the printed version and charged $1,000 to anyone buying the CD-ROM by itself. Revenues continued to decline. The best salespeople left. And Britannica’s owner, a trust controlled by the University of Chicago, finally sold out. Under new management, the company is now trying to rebuild the business around the Internet. (Evans and Wurster, 1997)

3.    Information and Information Systems affect Economy

To get started with this section, let us first try to understand what we mean by information and information systems in the present context.

Information: It is essentially difficult to define information as it is a technical term that is used across the disciplines in myriad ways. Here we would understand “information as that which reduces uncertainty” (Buckland, 1991).

Information Systems: Enterprises constantly require information. In organizations managers build information systems to serve the interests of the business establishments. Information systems are created to support operations, management and decision making. Information System is collection of technical (hardware and software) and human resources that provide the storage, computing and communication for the information required by the organisation.

As the concept of information is intertwined in the concept of information systems, in the rest of this section we will try and explore how information and information systems together affect economy. The number of organizations adopting information technology to build their information systems is growing enormously. Initially organizations used technology to automate operational processes but somewhere along the line the technology was instrumental in bringing about a revolutionary change in their basic business procedures. We can examine the effects of such revolutionary advances on the economy with reference to the following five different aspects.

3.1.      Economic Effects of Information Technology (IT) on Organizations

Information technology has brought about fundamental changes in the economics of organizations. They can be viewed as a factor of production which can be substituted for capital and labour. Labour has always been expensive; so when the cost of technology decreases and can be substituted for labour it translates into an overall reduction of costs. In other words, with good information systems in place there will be a decline in the number of middle level managers and clerical staff employed by the organizations. Like labour, capital has also been expensive; as the cost of information technology decreases, it also substitutes for buildings and machinery. Owing to the declining cost of technology compared to capital investments and labour costs, managers tend to invest more on Information Systems.

As more and more is invested on Information Systems, it helps in reducing the size of the firms further. This happens because the organizations not only reduce their production costs but also reduce their transaction costs. Transaction costs are costs that organizations have to spend on market participation like locating the suppliers for the auxiliary parts that the organization itself does not produce. They also need to monitor the orders and their compliance; buy insurance and communicate with suppliers and others. All such transaction costs incur huge expenditure. That is the reason why traditionally some organizations preferred to grow bigger by having their own suppliers and distributors. Now with good information technology in place it is easier and less expensive for organizations to link with external suppliers and reduce their transaction costs without having to expand in size; yet they manage to increase their revenues. With good information systems in place organizations also tend to reduce their internal management costs, i.e., the cost of monitoring and supervising the staff. The information regarding the productivity of the employees can be easily acquired and analyzed with help of IT with reduced costs. Thus sound information systems enabled by IT help organizations to reduce the overall management costs and increase their revenues manifolds which in turn help the economy to grow.

3.2.      Electronic Markets

The advancement of technology has changed the face of markets. Electronic markets or E-Markets refer to the use of the Internet and digital media capabilities for marketing products. It means the application of all marketing principles and techniques via electronic media for the business. It is also called as Internet marketing or online marketing. Electronic markets are part of Electronic commerce.

Besides computers, Internet and World Wide Web, a range of technologies like digital telephone networks, cellular networks, interactive cable television, e-mails and a plethora of online services are used in electronic marketing to connect businesses to their customers. For online promotional techniques, delivery and communication, electronic marketing uses websites, search engines, social media, interactive online ads, online directories, e-mails, mobile phones and so on.

With increased globalization of the world economies for many enterprises electronic marketing has become imperative as it gives them access to mass markets at affordable prices. Small firms find it affordable as it is cost effective and all kinds of firms can go for a personalized marketing approach. The other benefits are that 24/7/365 marketing is possible with a wider reach. Interactive features of the Web make it possible to engage with the audience more effectively.

For the market institutions to be efficient it is important to know where is the demand for a commodity and where is the supply. That is why in age old marketing middle men are used. Today many agents help in intermediating in online marketing to bridge the information asymmetry. There are also free online classifieds like OLX.in, that helps all individuals to buy and sell.

Some case studies (Heck & Ribbers, 1996) reveal that electronic markets can bring about negative or positive effects to the participating stakeholders. However, when designed and implemented carefully the return on investment from electronic marketing would be definitely higher than the traditional marketing and beneficial to the global economy.

3.3.   Network Effects

‘Network effects’ refers to the effect whereby goods or services become more valuable when more people use it. For example, if more people use telephone or social networks, higher would be its value to the entire group. This concept was first presented by Bell Telephone in the early 20 thcentury. Later it was further developed by many researchers. Katz and Shapiro (1994) while theorising about network effects stated:

Many products have little or no value in isolation, but generate value when combined with others. Examples include: nuts and bolts, which together provide fastening services; home audio or video component sand programming, which together provide entertainment services; automobiles, repair parts and service, which together provide transportation services; facsimile machines and their associated communications protocols, which together provide fax services; automatic teller machines and ATM cards, which together provide transaction services; camera bodies and lenses, which together provide photographic services. These are all examples of products that are strongly complementary, although they need not be consumed in fixed proportions. We describe them as forming systems, which refers to collections of two or more components together with an interface that allows the components to work together.

(Katz and Shapiro, 1994, p.93)

The works of Katz and Shapiro are considered among seminal work on network effects. These researchers tried to explore the economics of such systems. Here they could see market competition between two systems instead of between two individual products. This they concluded highlighted the issues of expectations, coordination, and compatibility. According to them:

In many cases, the components purchased for a single system are spread over time, which means that rational buyers must form expectations about availability, price, and quality of the components that they will be buying in the future. The use of a particular type of computer, for instance, may lead to large investments in human capital and software that work only with that type of computer. Once a certain system is chosen, switching suppliers is costly because new relation-specific investments have to be made. In such a situation, systems that are expected to be popular—and thus have widely available components—will be more popular for that very reason. (Katz and Shapiro, 1994,p.93-94)

Network effects are witnessed more in acceptance of technologies for which interaction or compatibility with others is important, like telephone, social networking sites, fax machines, etc. The basic purpose of certain products may not be interaction with others, but prospective buyers would tend to buy the one which is used by many others. For example, a computer operating system which has a large number of users would be the popular choice by many because more software would be written for it. However, for the network effects to take hold it requires enough number of users initially, which is known as ‘critical mass’. After this ‘critical mass’ or it is also called the ‘tipping point’ is achieved, the good or service should be able to get many new users because then its network would be more useful.

Contextually, it is helpful to understand the concept of network externality which is often used as another expression of network effects. According to Easley and Kleinberg (2010,p. 509), “An externality is any situation in which the welfare of an individual is affected by the actions of other individuals, without a mutually agreed-upon compensation”. For example, telephone, fax or social networking sites would be more beneficial to an individual when more people use it. When someone joins such a network they increase the welfare of others which is called as a positive externality. When too many people use a service negative network effects like congestion can occur. For example, if there are too many users of a website, its server may go down. So when there is a decrease in welfare that is called a negative externality.

Thus network effects have significant economic consequences. When increases in usage of certain goods and services cause an increase in value to all users, this results in a form of increasing returns, which changes the nature of market competition significantly. Network effects are important phenomena of new economies. Although telephone systems are the most popular examples, but all contemporary technologies expand that example immensely.

3.4.      Social Media

It is also important to look into the effects of social media on economy. Many today believe that social media is the driving force in the current global economy. Today social networking sites are not used just for personal interactions, but also for serious business. Social media has helped provide millions of job opportunities throughout the world. Facebook, started by Mark Zuckerberg with only a handful of employees, is now a multi-billion dollar business with over 3,500 employees. Twitter, an online social networking website and microblogging service with 554,750,000 active registered users had 2,500 employees by July 2013. Social networking channels also earn huge revenues through advertisements. LinkedIn is yet another social media company with 900 employees, and Groupon has 4500 employees. Social media is also used as a route to self- employment like consultancy services. Social media’s contribution to the global economy is somewhere in the range of 8.5%. In January 2012 Facebook COO Sheryl Sandberg: (2012) said that Facebook is not just fun, posts and pictures, it is all about growth, jobs and empowering people. She said according to the Deloitte study (2012) Facebook added $15.3 billion in value to the European economy in 2011 and the company was responsible for 232,000 jobs in Europe.

Besides raise in employment, improved communication through social technologies also help in improving the productivity of workers with in and across organizations. Enterprises are using social networks to build teams where employees share information and solve problems quickly. More importantly, today social media is used for marketing in a big way. According to Cambridge Dictionaries Online (2013), social media marketing means “methods for advertising products, services, or brands using the internet, by attracting the interest of groups of people who discuss them, make suggestions about them, etc. online.” When people share the content of such product promotions through social networking it spreads rapidly across millions of users. Users also find it appealing as it appears to be coming from their friends rather than the company itself. Moreover, in social marketing the enterprises join the social channels and interact with the individual followers and such personal interactions make them loyal to their products. Web 2.0 tools, especially blogs allow the users to post comments about products which acts like repeated product promotion. For instance, when an individual makes a purchase through Flipkart, the website encourages the buyer to post a comment on her experience or write a review of the book purchased. These are referred to as ‘electronic word of mouth’. Many a time prospective customers buy a product as they feel it has been endorsed by someone who has actually used the product. This has an altogether different impact from the one that would be endorsed by a celebrity. Through social networks like Facebook and Twitter business houses learn about the likes and dislikes of their consumers and that makes it easy for them to advertise accordingly. Google+ can easily track the location of its users so it helps in location-based marketing. Many mobile phones and especially smart phones can all be connected to the social networking sites like Facebook, Twitter, Foursquare etc. Such networking capabilities in mobile phones mean that users can be updated in real time about new products and comments on them. Quick Response Codes (QR) makes it all the more easy to get connected to a company’s website for complete information through a smart phone. Today business is taking on to social media in a big way. The sale of software to run corporate social networks runs into billions of dollars. Social media marketing is the reality of today’s economy.

3.5.   Informational Characteristics of Markets

Markets generally have informational characteristics. There is always an information gap between the knowledge of the buyer and the seller. In other words, the buyer generally, though not always, knows less about a product or service than the seller. This is called ‘information asymmetry’ which was mentioned earlier under Subfields and Related Fields. The availability of information or lack of it does have an impact on the performance of the markets. Unlike in academics and research, markets are not subjected to smooth flow of information; uncertainties and resulting risks are very common to buyers and sellers. If we take retail markets, buyers are invariably at a disadvantage as they have very less information about the quality of the product or its hidden defects. To instill confidence among the buyers, the sellers sometimes offer a warranty or guarantee. In a way this is an attempt to reduce the information asymmetry experienced by the buyer. Besides advertising, the sellers also bring out product promotional literature for the buyers. Better and more reliable the literature, i.e., information about the product, greater would be the sale of that product.

Asymmetric Information also affects the financial markets. Generally uncertainties surround any investment project; and this puts a question mark on the repaying capacity of the borrower. A lender can suffer a wrong selection when he is not able to distinguish between projects with different credit risks. When two projects are of equal value, the lender would prefer the one that is safest but the borrower would go for the one that is riskier. Thus, borrowers who undertake risky projects would hide the true nature of the project and would take advantage of the lender’s lack of information. Different uses to which the borrower may use the funds which was not agreed upon in the contract with the lender could be yet another hazard which takes place as the lender is hindered by his lack of information.

There are markets where, the buyers often have superior information compared to the sellers. In job markets, employer would be interested in recruiting only the skilled person and all candidates would claim to be skilled, but only the candidates know whether they are actually skilled or not. This is a situation of information asymmetry. That is why the certificates of having attained an educational qualification or previous work experience etc. act as a signal to reduce this information asymmetry. In insurance markets also it is the buyer who has more information than the seller. In automobile insurance markets, the new policy holders are likely to under report their past claims history and insurer may not often know much about the actual driving experience of the prospective customer. In fact this asymmetric information is often pointed out as the major factor hampering the effective operations of insurance markets. For example, in health insurance markets, the subscriber would have superior information about his health which may be at a higher level of risk and thus he may go for more coverage. But for such higher risk cases the cost of coverage would also be very high owing to which the insurer’s profits may suffer. Insurance companies do try to reduce this information asymmetry by asking the prospective subscribers to go for health checkups and bring the needed medical certificates.

4.    Information as a Commodity: In the first place, let us try to understand what a commodity is.

4.1. What is a Commodity?

The New Oxford Dictionary of English defines commodity as: 1) “a raw material or primary agricultural product that can be bought or sold, such as copper or coffee”; 2) “a useful or valuable thing such as water or time”.

Merriam-Webster defines commodity as “something that is bought and sold; something or someone that is useful or valued.”

It means commodity is something that can be bought and sold and is useful.

When we regard information as a commodity, we must understand that it differs from tangible goods in terms of what constitutes value and what it means to sell or buy. One does not possess information in the traditional sense, even when we talk of ownership or the rights in information. Information does not exist in one place like a tangible object, it is intangible. When recorded in a medium like paper or CD, we may touch the medium and not the content, i.e., the idea imbedded in the document. Also hundreds of individuals can possess the same piece of information at a given time (especially when we view ‘possess’ as understanding the information) but the same is not true, let us say, for a music system. When we talk of possession of tangible goods, we mean physically possessing it. Unlike other tangible goods, information can be retained by the owner even after selling or delivering it. If the buyer wants to be the sole owner or controller of the information then there has to be some restraint on the seller through law or agreement that the information would not be sold or given to anyone else. This is how an information product could be commercialized. Even in such a scenario there can always be a breach of agreement and the information may be leaked to others. So let us first look into the characteristics of information before discussing the economic properties and economic role of information.

4.2.   Characteristics of Information

The information age visionary and thinker, Harlan Cleveland (1982) has identified six characteristics of information.

4.2.1. Information is expandable: As we use information it expands and does not deplete. This characteristic of information is exploited by many like scientific research, computer software and hardware industry, publishing, advertising etc. As information is expandable and all the facts are never in, the problem of information uncertainty also comes into play and information overload makes life different if not difficult. Besides, it is very difficult to measure the extent to which information is expandable.

4.2.2. Information is compressible: Strangely enough, information that is infinitely expandable is also compressible. Insights from large amount of data can be compressed into a theorem or formula. Vast experiences can be encapsulated into a manual or handbook.

4.2.3. Information is substitutable: Information can be substituted for land, labour and material. For example, automation can replace a good portion of the workers in manufacturing industries. When communication is done through e-mails, physical material like envelops and stamps are not needed. In an e-learning environment you do not need huge lands for a physical building.

4.2.4. Information is transportable: Information is transportable across space and time. You can send messages in real time from one end of the globe to another. Today you can even send messages from earth to devices on Mars.

4.2.5. Information is diffusive: Information is very restless and leaks. It is difficult to bind it legally or through any authoritarian force. It always finds an outlet to spread.

4.2.6. Information is sharable: Information is sharable and not exchangeable like goods. If someone gives you a pen then you have it and the giver cannot have the same pen; but when you give your knowledge to the other person, both of you will have it and it can be shared with still more people.

So, information as a commodity is very different from other tangible commodities. Yet Machlup (1973) pronounced information to be the transforming resource for the post-industrial society. It means information which is so important for development possesses attributes similar to other tangible commodities. It is often pointed out by economists that consumption and cost of information is measurable like that of any other commodity and can be subjected to cost accounting analysis. Information also goes through the cyclic process of generation, collection, storage, refinement, dissemination, use and disposal like any other commodity. So information although intangible, possesses the attributes of a tangible commodity and is an important economic resource for the development of individuals and nations.

4.3. Economic Properties of Information: As information is an important economic resource for development, let us consider the economic properties of information.

• Content vs carrier: A change in the physical carrier of information does not affect its content. The subject content of a book would remain the same whether it is in print format or in e-format in a CD.
• Use of limited physical resources: To produce information huge amount of physical resources are not needed. With limited physical resources huge amount of information can be produced.
• Minimal reproduction cost: Unlike other commodities reproduction of information incurs minimal cost. Only the first copy is costly and involves the major cost; the additional copies can be created with much less cost.
• Lesser transportation cost: Especially when the information is in the electronic format, its transportation cost is very small.
• Priced according to consumer value: Information is priced not according to its production cost but according to its consumer value. Unlike physical goods, it is difficult to draw a direct relationship between the amount of material used to produce a certain information. For example, for a piece of clothing one can measure the amount of cloth used; but for a written research report how would one measure the intellect that has gone into it. Hence the value of research lies with the potential consumer. Even when the information is not priced distributed free, it comes at a definite cost.
• Relationship between time and value of information: Relationship of information and time is very complex. Sometimes like perishable goods yesterday’s information, especially in the context of stock markets, may become worthless today. Sometimes like real estate in India, its value may increase tenfold in future. For example, a pharmaceutical research conducted today, may be considered a breakthrough result in future.
• Relationship between distance and value of information: Just as the value of tangible commodity decreases if one has to travel a long distance to acquire it, the value of information would also decay if one has to travel a long distance to access it.
• Differential usage: As the value of information lies with the consumer, the degree of its usage also lies with the consumer. Generally a small percentage of users tend to use information more frequently and high percentage use information less frequently. This small percentage would be the group prepared to pay high price for information.
• Larger the accumulation more the value: When the accumulation of information is very large it becomes more valuable. For example, older the data warehouse more valuable would be the permutations and combinations that can be achieved in data mining.
• Information can be owned: To ensure that creators are able to sustain their creativity their intellectual creations are looked upon as intellectual properties and hence they are protected through Intellectual Property Rights (IPR). IPR confer ownership rights and protection to the creators of intellectual products. Such a protection gives the creators some opportunity to recover the investments that they have made and an incentive to make it available to rest of the world.
• Information can be bequeathed: In India the length of copyright is the life of the author plus 60 years. In most of the world, it varies from 50 to 70 years after the death of the author. So it means the authors can hand down these rights to their heir and like any other property it can be inherited by the relatives.

4.4. Economic Role of Information: Information has a powerful economic role to play

• Information is essential for decision making in governance.
• Information helps in decision making to individuals as well as organizations.
• Management information systems help in the operational management of the organizations.
• Information has a very important role to play in the market. If information asymmetry is not resolved, transactions cannot take place.
• As information can be substituted for land, labour and material it can bring down the cost of production of goods.
• Information through advertisement and market promotions influences and encourages people to buy.
• Information is essential in education and research. No teaching and learning process can take place without information.
• Information is essential to legislate.
• Information is essential for the judiciary.
• Information is essential for armed forces.
• Information is the substance of the entertainment industry; be it a feature film, theater, TV or radio show.
• Information is vital for tourism and hospitality industry.
• Information also supports service sectors like banking, insurance, transportation, media etc.
• Information services can be sold by private individuals as consultants.
• Information by itself is a subject of scientific study.

5.  Information Services as Products

All information, products essentially involve a service component. Data may often be first collected and compiled, then analyzed and organized in a given structure. Technology has made the creation, manipulation and dissemination of information products much easier. Technology also helps in introducing flexibility into these products making customization possible according to the requirements of the user. Information products did exist even before Information Technology came into the picture, but now with IT around it is much easier to create, manipulate and distribute information. An attempt would be made in this section to capture the information services that are distributed and or sold as products. These are essential information related activities of the economy.

5.1 Offline Information Services as Products

Offline information services as optical products on CD-ROMs, VCDs, and DVDs abound in multiple areas of human activity. Scholarly databases either as back volumes of journals or encyclopedias are available on CDs and DVDs in diverse disciplines. At the same time we have the whole entertainment industry thriving on music and film CDs, VCD, and DVDs. The video game industry is yet another multimillion dollar industry engaged in the development, marketing and sales of video games.

5.2. Online Scholarly Database Services as Products

There are many online databases providing access to articles in academic journals, repositories, archives, or other collections of scientific articles. Many of these databases are subscription based but at the same time a substantial portion is also in the open access. Researchers, teachers and students generally depend upon these databases for their study and research. As a subscription based databases are very expensive for individual subscriptions, it is the libraries which normally subscribe to them and give access to their members. Users are also able to purchase individual articles from the publishers or providers of such services. For example, EBSCO Publishing provides Academic Search, AgeLine, Cumulative Index to Nursing and Allied Health; ProQuest provides Aerospace & High Technology Database, Ulrich’s Periodicals Directory; Thomson Reuters provides Web of Knowledge(which includes, Web of Science, Biological Abstracts, The Zoological Record, Current Contents and West Law); Elsevier provides ScienceDirect, Scopus, Compendex, EMBASE; JSTOR provides JSTOR: Journal Storage; and Springer provides SpringerLink. All these are subscription based scholarly databases. Some free databases for example are, AGRIS: Agricultural database, Analytical sciences digital library, Anthropological Index Online, arXiv, Directory of Open Access Journals, ERIC: Educational Resource Information Center, Index Copernicus, Subject gateway, Mendeley, PubMed, PubChem etc. Google’s Google Scholar is yet another free multidisciplinary database. Many universities give access to free scholarly databases.

Huge databases of the governments of many countries and the United Nations are free and are often easily accessible. Social scientists frequently use these databases for research. For example, census data about India is available at censusindia.gov.in and any authentic information about India is available at india.gov.in. Similarly, good databases are available through United Nations’ website (un.org) and UNESCO’s website (unesco.org).

5.3. Electronic Information Services for Professional Purposes as Products

There are a range of electronic information services for professional purposes. There are medical professional information services targeting pharmaceutical and healthcare industries who like to outsource medical communications. These services provide customized services to their clients, allowing them to choose the language, timings and the source of searches. ‘Professional Information’ (professionalinformation.co.uk) and Ashfield Medical Information (ashfieldhealthcareusa.com) among many other such services provide medical information solutions to their clients. There are employment websites which are like professional information services, helping the prospective employers as well as employees. Employers can post their requirements for various positions in their organizations on such sites and job seekers can locate the job they are interested in and submit their resume by filling online applications. According to eBizMBA(http://www.ebizmba.com/articles/job-websites),Indeed , Monster, CareerBuilder, Glass Door, Simplyhired, Aol Jobs, Beyond, Bright, Snagajob and ZipRecruiter were the most popular job sites in December 2013. In India naukri.com is a popular site for job hunters.

5.4. Electronic Information Services for Social Purposes as Products

Especially in India and among Indians settled abroad, matrimonial websites are very popular. Some popular websites are bharatmatrimony.com, shaadi.com, jeevansathi.com, simplymarry.com, communitymatrimony.com, etc. There are also matrimonial websites specifically for Tamil, Marathi, Bengali, Kerala etc. The online matrimonial matchmaking business in India is growing into crores of rupees.

For travel and tourism besides the government websites may private services like makemytrip.com, yatra.com are available in India. Plenty of tour operators serve their holiday packages at competitive prices to lure the customers.

5.5. Business Information Services as Products

Business environments are highly competitive today where access to critical information is the key to success. Business houses may want information about a list of companies in a particular country dealing in a particular commodity with more than a particular turnover. Or they may want to know what should be there in a CEO’s service agreement? Or how can they set up a company in another country? Numerous business information services are there to solve such problems. Any organization can hire them for technology services, recruiting services, business intelligence research and the like. These services are sold as products in a variety of languages, in any part of the world, collecting information from wide variety of sources. These services provide quality, timely and up-to-date information needed for success in the business world. For example, bizinfoservices.com, dowjones.com, iod.com, etc. are some such business information services. Besides business information services, there are many online shopping sites. Much has been already said about electronic marketing in Section 3.2.

5.6. Financial Information Services as Products

Often, individuals need professional help to manage their finances. They need advice on money issues such as investments, insurance, savings for education, estate planning, taxes, retirement, portfolio management etc. Clients are often prepared to pay for such services. Such financial advices are offered by many sites like financialadvice.co.uk, adviceamerica.com, myfinad.com, markit.com, arthayantra.com, etc. Yet another site, humanservices.gov.au, provides free financial information service to all Australians. Many financial services companies besides wealth and asset management also give advisory on capital market. So such services also give the latest on the stock markets. Many services just specialize on providing stock market tips and they provide free as well as paid tips. Real estate services help in buying and selling property. For example, magicbricks.com, indiaproperty.com, makaan.com are such property services in India.

5.7. E-mail Services as Products

Email services help users to send, receive and view e-mail from their Web browsers. Gmail,Yahoo!Mail, Mail.com, Hotmail, AOL Mail, Pobox, etc. are all popular e- mail services. All these e- mail services are free and they offer easy access and storage of e-mail messages to users. Besides such free e-mail providers who sustain themselves through advertisements, there are also premium e-mail services charging a fee that are targeted towards niche audience. E-mail boxes of users of such fee based services are not cluttered with advertisements or pop up offers. They have high performing anti-virus and anti-spam protection. Generally the premium e-mail services are fast, reliable and secured. The probability of their accounts getting hacked is much less compared to free services. Open Directory Project (2013) lists the following services under e-mail webmaster providers:

• 123mail – Offering scalable email outsourcing solutions to meet the needs of corporations of all sizes.
• Commtouch – Messaging and Web security solutions for security vendors and service providers.
• Critical Path – Provides outsourced, scalable email services to corporations, web portals, ISPs, and web hosting companies.
• EnterGroup.com – Offers fully managed and integrated Web-based email for pricing based on set-up fee, per mailbox fee, monthly fee, and revenue sharing.
• espMail – Provides email services for small businesses.
• Everyone.net – Add email service, message boards and a search facility to your website.
• FuseMail – Professional Email Hosting Services for Businesses. Features include IMAP, POP3, Webmail, SMTP and Spam protection.
• LuxSci – Provides e-mail accounts to businesses and individuals
• Mail2World, Inc. – Provider of outsourced email and collabouration services for consumers, enterprise corporations, and service providers throughout the world.
• MailUpNet – Allows customers to send newsletters to theirs subscribers.
• OutBlaze – Offers co-branded web-based e-mail service to content sites.
• PolarisMail – Offers business e-mail hosting with secure POP3, IMAP, SMTP, webmail and advanced spam protection.
• Rackspace: Email & Apps – Provides hosted Exchange and secure web-based email hosting services with anti-spam and virus protection for small business.
• Simplicato – Provides dynamic and progressive email Archiving and Email hosting solutions.
• Swishmail.com – Provides outsourced email hosting services for businesses.
• ZapZone Network – Provides instant and customizableweb-based email to websites. (Open Directory Project,2013)

5.8. Electronic Information Storage Services as Products

Internet users often feel the need to send large files to more than one person. Often email service providers do not allow large file uploads. Sometimes even the blog or Web site hosting provider allows only very limited and small upload room for pictures, images, etc. To fulfil this need many online storage service sites are available for free as well as for fee. They allow users to store photos, videos, textual documents and any other file. The free online storage services generally have a limit between 1 GB and 10 GB of storage space and often limit on the size of any single file that will be allowed to store. Sometimes they also have a limit on the amount of bandwidth that can be used in a single month. Moreover some free services can be used for a limited period of time. So there are many fee based information storage services proving to be more beneficial. They not only allow more storage space but also have more features like automatic backup of any modified file on the user’s computer thereby keeping it up-to-date. Some online storage services are Dropbox, Google Drive, Mozy, Omemo, Box, MediaFire, DivShare, YouSendIt, Senduit, 4Shared, Megashares, PhotoBucket and ImageShack.Project Manager .com and ADrive also offer Online File Storage. IBM has also launched an industry specific cloud service.

5.9. Real Time Information Services as Products

There are many real-time information services. For instance, Internet Baking gives real-time access to the accounts of account holders. Clients can receive payments, view details of their account, open fixed deposits or request for a cheque book. Clients can also make online payments of their utility bills. Many banks even provide the facility of prepaid recharge, online tax remittance, account statement on e-mail, online credit card payment, online personal loan EMI payment, etc. Today banks are trying to offer a non-stop interactive banking environment. Even mobile services like mobile banking, SMS banking, interbank mobile and payment services are available. Almost all the modern banks, like ICICI bank, Standard Chartered Bank, City Bank to name a few, offer such real time services.

There are also real time weather services giving the minute details of the weather of a desired geographic location. The real time currency converter services offer live currency rates. For example, forex-markets.com, gcitrading.com, oanda.com are some such sites. There are also services providing real–time ‘running status’ queries for all trains, PNR status, reservation status, etc. For example, enquiry.indianrail.gov.in, etrain.info, indianrailways.gov.in provide such a service for Indian railways and realtimetrains.co.uk does the same for United Kingdom.

Real time stock exchange alerts are provided by many services like seekingalpha.com, rtdsdata.com etc. Real time news alerts are provided by almost all online newspapers and TV news channels. Even Yahoo and Google provide real time news updates.

5.10. Audiotex Services as Products

There are voice information services, also known as audiotex that use a voice response application permitting users to retrieve information over the telephone. According to Yourdictionary.com (2013) audiotex is also known as audiotext. It is: A simple voice processing technology that is essentially a voice bulletin board, audiotex allows callers to select prerecorded messages from a menu. Audiotex is used to provide information that seldom changes or that must be available to large numbers of callers. Examples of such messages include time and temperature, hours of operation, travel directions, facsimile (fax) numbers, web addresses, and school closings.(Yourdictionary.com, 2013)

There are audiotex services for gaming and betting where clients bet into a game through a telephone call. Audiotex services for voting are used for public polls; often TV channels do it. Audio services are there for weather, horoscope, professional advice, fun chat etc. The content of such services is defined as information. Such pre-recorded audiotex services are charged by the providers on per call or per minute basis.

5.11. Videotex Services as Products: According to Wikipedia(2013) “Videotex is any system that provides interactive content and displays it on a television, typically using modems to send data in both directions”. It is a technology that makes use of television, computer and the telephone. A very successful videotex online service was Minitel which operated during 1980s in France before the emergence of World Wide Web. It was possible to make train reservations, check stock prices or search telephone directory the way we do it now in the Internet era. Many European countries have introduced it as an extension of their postal, telephone and telecommunications services. Videotex enables interactive communication for data acquisition and dissemination and electronic banking and shopping.

All these services can be viewed as products, as although they provide greater availability of information, but to have qualitative access to them involves cost.

6. Summary

In this increasingly complex and dynamic world information is very important for human as well as technical development. Information has become a primary source of income and thus economics of information has become an interesting and important area of study. This lesson has discussed the following aspects of economics of information.

• Economics of information is a branch of microeconomics theory that studies how information and information systems affect an economy and explores the extent to which markets and other institutions process information and respond to costly information.
• Signal and Information Asymmetries are subfields and Game theory is a related field of Economics of information.
• Information reduces uncertainty and Information System is a collection of technical and human resources that provide the storage, computing and communication for the information required by the organization.
• Information and information systems together affect economy which can be understood by looking into the a) Economic effects of IT on organizations, b) Electronic markets, c) Network effects, d) Social media and e) Informational characteristics of markets.
• Commodity is something that can be bought and sold and is useful. Information as a commodity differs from tangible goods in terms of what constitutes value and what it means to sell or buy. So in the first place it is important to understand the characteristics of information before discussing the economic properties and economic role of information.
• Information has very interesting economic properties and has a very powerful economic role to play as no decision making can take place in any sector without information.
• All information products essentially involve a service component. Technology has made the creation, manipulation and dissemination of information products much easier. A wide range of information services are distributed and sold as products. These are essentially information related activities of the economy.

7.     References

• Branscomb, A. W. (1995). Public and private domains of information:defining the legal boundaries. Bulletin of the American Society for Information Science, 21 (2).Retrieved October 22, 2013 from http://www.asis.org/Bulletin/Dec-94/branscom.html
• Buckland, M. K. (1991). Information as thing .Journal of the American Society for Information Science,42(5),351-360.
• Cambridge Dictionaries Online. (2013). Retrieved November 15, 2013 from http://dictionary.cambridge.org/dictionary/business-english/social-media-marketing
• Cleveland, Harlan. (1982). Information as a resource.The Futurist, December 1982, 34-39.
• Easley, D. & Kleinberg, J. (2010).Networks, Crowds, and Markets: Reasoning about a Highly Connected World. Cambridge University Press. Complete preprint on- line at http://www.cs.cornell.edu/home/kleinber/networks-book/
• Evans, P. B., & Wurster, T. S. (1997). Strategy and the new economics of information.Harvard Business Review, September 1997. Retrieved November 03, 2013 from http://hbr.org/1997/09/strategy-and-the-new-economics-of-information/ar/1
• Heck, E. V & Ribbers, Piet M.A.(1996). Economic effects of electronic markets.Retrieved November 03, 2013 from http://arno.uvt.nl/show.cgi?fid=3432
• Katz, M.L. & Shapiro, C. (1994).Systems competition and network effects. Journal of Economic Perspectives, 8 (2), 93-115.
• Open Directory Project. (2013). Computers: Internet. Retrieved December 19, 2013 from http://www.dmoz.org/Computers/Internet/E-mail/Webmaster_Providers/
• Sandberg, S. (2012). Social Media Helps Drive the Global Economy. Retrieved November 15, 2013 from http://allthingsd.com/20120124/sheryl-sandberg-social-media-helps-drive-the-global-economy/
• Stiglitz, J. E. (2008). Information. In David R. Henderson (Ed), The Concise Encyclopedia of Economics (2nded.). Retrieved November 03, 2013 from http://www.econlib.org/library/Enc/Information.html
• Wikipedia.(2013). Information Economics. Retrieved October 22, 2013 from http://en.wikipedia.org/wiki/Information_economics