The Future of The Internet
Conference

Speaker Notes:

David Post
Dan Burk
Robert Crandall
Trotter Hardy
Lori Fena
Danny Weitzner
Eugene Volokh
David Sobel
Clarles Platt

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"Congress & Digital Copyright: Avoiding
a Balancing Act"

Speaker: Trotter Hardy
the William and Mary School of Law

Information is a resource--
how is it allocated?

Classic political question
Continuum of possibilities:
Collective decision-making
(through the political system) or
Individual decision-making,
(through a market system) .

When collective, and
when individual allocation?

Collective decision-making appropriate when:
I. significant market failures
II. not offset by government failures
Individual decision making appropriate when:
III. transaction costs are low
(relative to transaction value)
IV. cheap to define and monitor
property boundaries .

I. What market failures
with digital information?

MF #1: Public goods issue
Non-rivalrous consumption
MF #2: External benefits issue
Culture, education, public benefit .

MF #1: What difference does
"public goods" make?

"Information" is a public good
… but so is "bananas"
"A banana" not a public good
… but neither is "a book" .

"Public good" depends on use,
it’s not inherent

If market is "reading a book once"
books are a "public good"
If market is "reading book right now"
books are not public good
If market is "still life painting of banana"
bananas are a public good .

"Public goods:" surrogate for
low-cost reproduction

We can have lots more bananas ...
… at high cost of more intense agriculture
We can have lots more copies of a book ...
… at relatively low cost .

Public goods problem =
cost of making copies

What if cost of making digital work
copies were high?
Public goods problem minimized or eliminated
Enormous R & D currently directed
to raising cost of copying
Encrypted digital objects, "Cryptolopes," etc.
Technology will overcome public
goods market failure .

MF #2: What are
information externalities?

External benefits: not reflected in costs
Example: Educated citizenry
If citizens benefit each other,
education and libraries are "important" .

Do citizens benefit each other?

Intuitives know the answer
"Things go better with Coke"
Data-gatherers want statistics
"How do we know that things go better with Coke?"
Answer depends on personality --
therefore is intractable .

External benefits problem
may be side-stepped:

Universal access = concern over
Information haves and have-nots
Falling costs may changes concern to
Information wants and want-nots
Costs falling faster than Congress:
$20/month TV access to WWW
No one worries about external
benefits of pencils .

So much for market failures ...

Now on
to government
failures ...

II. Government failures

Government decision-making
can be speedy ...
… at cost of huge externalities
Government decision-making
can reduce externalities …
… at cost of expensive negotiations to
reach agreement .

Example of collective
decision-making costs

What is cost of writing legislation--
say, a new copyright act?
Do interest groups spend time, energy, dollars
trying to reach agreement, persuade others, etc.?
That IS the high cost of collective decision-making: coming to agreement over legislation .

Conclusions on collective
decision-making

MF #1: Public goods quality of information:
low importance
MF #2: Information externalities:
intractable issue
GF: Cost of decision-making, externalities
likely to be significant

Hence: collective decision-making over information not very appropriate

So collective decision-making
is not appropriate ...

Is individual
decision-making
appropriate?

III. Are transaction costs over
information resources "low?"

and

IV. Is it cheap to define and monitor
digital information boundaries?

III. Are transaction costs over
information resources "low?"

Transaction costs = partly function
of communication costs
Communication costs in digital age
appear to be falling
Internet should mean lower transaction costs
At very least: Internet doesn’t seem
to bring higher cost communication .

IV. Cheap to define and monitor
digital information boundaries?

No harder to "draw" borders
Links, files, handles = "borders"
Monitoring: a problem of technology
Encryption, digital signatures, handles =
cheaper kind of "fencing"
Cheaper fencing = more fencing =
smaller parcels
Hence: we see per-page reading charges
(smaller information parcels) .

We have looked at four factors ...

relevant to collective versus individual decision-making over information resource allocation

What have we found?

I. Market failures: not significant
or indeterminate

II. Government failures: likely to be large

III. Foreseeable transaction costs:
seem to be falling

IV. Costs of drawing, monitoring borders:
seem to be falling

Overall Conclusion

Individual decision-making over the allocation of digital information is appropriate.
That means:

  • Balance between producers + consumers
    is not drawn by Congress in a statute

  • Balance is drawn transaction-by-transaction,
    by producers and consumers themselves

  • For the copyright statute, it’s therefore
    better to avoid a "balancing Act" .

That’s it!

Thanks for listening ...

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