The Peculiar Economics of Scientific Information Ted Bergstrom

The Peculiar Economics of Scientific Information Ted Bergstrom University of California, Santa Barbara

Traditional 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 and 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 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 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.

Average and Marginal Cost for Publishing Costs Average Cost Marginal Cost Quantity Q of output u

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 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 Scientific Information • • “Non-profit” Professional Societies University Presses For-profit publishers Government agencies

Non-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 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 nonprofit journal prices.

Profit and Non-profit publisher prices (In US $) Price per page For-profit Non profit Price per cite For-profit Non-profit Ecology 1. 01 0. 19 0. 73 0. 05 Economics 0. 83 0. 95 0. 70 0. 89 0. 63 0. 17 0. 15 0. 27 0. 10 0. 19 2. 33 0. 88 1. 32 0. 23 0. 38 0. 15 0. 07 0. 28 0. 04 0. 05 Atmosph. Sci Mathematics Neuroscience Physics

Advantages of Professional Society 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 Society 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 • In 1960 there were 30 economics journals, all non-profit, all cheap. • In 1980, 120 economics journals, half forprofit, half non-profit. • In 2000, 300 economics journals, 2/3 for-profit. • Between 1985 and 2000, top ten for-profits almost doubled their pages, top ten non-profits increased 20%.

Entrepreneurship • 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 Commercial journals • High prices to libraries mean access only for the wealthiest. • Scientists do the work. Publishers collect the money. • Great inefficiency in restricting access to science when marginal cost of access is zero.

What about tax-supported government provision? • Government could pay for scientific publication without charge to users. • But the answer is not so simple. • There remain some

Tough Questions • How much to publish? • When to start new journals? • How to decentralize and avoid fiefdoms? • How to control quality without stifling innovation?