INNOVATION BEYOND THE IMAGINATION OF THE MARKET KONRAD

INNOVATION BEYOND THE IMAGINATION OF THE MARKET KONRAD POSCH POLITICAL SCIENCE PH. D. CANDIDATE UNIVERSITY OF CALIFORNIA, BERKELEY

The Basic Argument • Interoperability of health records creates a lot of private & social value! • New technologies that would achieve interoperability met with resistance from medical professionals who may not perceive a personal benefit…physicians reluctant to upset “tried and true” workflows unless they could clearly see a benefit. . . reluctant physicians could be persuaded to adopt new technologies & procedures when they were made to “see the personal utility of the new technology. ” • Adoption Catalyst model of regulatory response to disruptive technological innovation (DTI): regulator as driver of innovation adoption—has higher access to information than firms in regulated sector & seeks to catalyze change from one state of business as usual to another where the DTI has become a sectoral general purpose technology.

Is it really not obvious that benefits of interoperability outweigh transition costs? Your willingness to pay for products that are interoperable derives from various sources: 1. You’re willing to pay for using the product (type notes to yourself). 2. You’re willing to pay to interact with: – Other consumers (call your friend) – Sellers (purchase an Uber ride) 3. You’re willing to pay to interact with other products (send pictures from phone to PC). 4. You’re willing to pay to use old files with your new devices (you upgrade your notebook, but you value your old files).

Interoperability raises willingness to pay & shifts out the demand curve.

Puzzle: if greater demand for interoperable products is self-evident & strong incentives to supply new demand curve, why doesn’t market work? • Voluntary standard setting organizations have been able to bring private market players together to: o Standardize electrical outlets o Standardize smartphone modems (specialized microchips) o Standardize ring binders (3, of course) & deck screws! • What informational & coordination costs prevented suppliers of technology from providing it to potentially willing consumers? • Need more convincing that consumers (doctors & patients) were unwilling & if so why exactly?

A Discourse Network Analysis of the Data Protection Debate in California Matthew Maguire, San José State University Thomas Altura, San José State University

Do consumers really care all that much about privacy? • What do surveys say? • Revealed preferences say they don’t. If they did, they would not be so eager to be on social media all day, sharing all their data indiscriminately. • My own intuition is that concerns about privacy are overblown & driven by elites & the media. • We’ve seen this movie before—privacy panics around telephones, toll roads, loyalty cards, cameras & computers.

What exactly is the problem a privacy law is intended to solve? • At the end of the day, this is about property rights over data. • So, let’s imagine an actual redistribution of property rights to consumers. • Would we be better off if consumers got paid for their data? o If consumers had property rights to their data, instead of companies, then that may be better for society: companies would probably pay for higher quality data & not just focus on high volumes of data. o Consumers may be incentivized to be more judicious about their use of social media —post things that get them paid; this might reduce adverse selection & be good for productivity & innovation. • However: o AI algorithms often rely on brute force techniques & perhaps if they had to pay for data they simply would not have access to the large pool they have access to now. o There might be perverse incentives: moral hazard is that consumers would be even more rewarded for trolling & shock value.

Is this about distribution? • If consumers got paid for their data, then they would earn a bigger chunk of the surplus & firms would earn a smaller chunk. • However, if efficiency is enhanced by redistributing property rights to consumers, then firms would still enjoy a larger pie, even if the portion of the pie they eat is smaller than it was before. • Might firms realize this & support paying users for their data, therefore obviating regulations about privacy? • If users did get paid for their data, then why would we need privacy protections?