Friday, November 02, 2007

Information as a source for optimal allocation of resources (II)

Ronald Coase wrote an essay on The American Economic Review. (Vol.64,Nº2 1974),about the real differences between the market for ideas and the markets for goods, to justify the regulation framework applied to both of them :None for the markets for ideas, and a lot for goods markets. He suggested that from the regulation point of view, the markets for ideas (information), should be treated the same way it is treated the good market. In other words, regulations should be applied to both markets. Therefore any activity related to the production of information(the press, new sources of information (internet),religion and innovation )should be regulated the same way it is the good markets, to the extent that for Mr Coase , both markets are similar.-
Are both markets alike ?.The big difference is that information is needed for the decisions process of efficient allocation of resources, as much as the human body need water to keep itself alive . Any restriction on information ,is an artificial constraint on data flow which leads to inefficiency and welfare loss.The cost for society of applying regulation to such a data flow ,is higher then the benefit from it. Welfare level depends upon the level of information available, to make possible the decisions making process which leads to production and consumption equilibrium levels , and above all, because it is not possible to substitute lacking of information, it follows that the welfare frontier lies below its optimal level. Information value is at its most, when it is available just on time . Besides by definition, from the economic point of view, nobody get the benefit of the missing information. Hoard information is useless.
Quite different to the goods markets case. Any good can be substituted, because of quality failure or prices ,which allow consumers to protect their welfare level . However, those case of goods which can not be substituted (lack of substitutes) ,gives to its producer an above normal level of benefit . This above normal level benefit, which is absent in the information case (normal market situation), justify to regulate markets such monopoly and , oligopoly to neutralize social cost
What about privilege information ?.Well this information does not have substitutes, and indeed it might provide to its owner, high level of above normal benefit. This the only kind of information ,which should be addressed with some normative approach which is quite different to a regulation framework .In other words ,it is a matter a ethic to allow the benefit of better and more information to everyone , because information production is the result of a lot people working toward the fulfilment of a goal, none of them measure the value of their contribution, therefore the benefit arising from it belong to all of them.
Finally ,Mr Coase ´s essay suggestion that this issue is a matter of convenience for intellectual community ,more powerful than consumers organization , might lead to believe that the problem of regulation in both markers is related to special interest group abilities to pursue their own interest, despite the impact on welfare. In particular, the strong argument for press freedom , made by the new media , it would clear reflect the relevance of this kind of focus .However, the missing point in such argument, is that new media, no matter the means they use (newspaper, Tv ,radio, internet),or the power of its owner, reduce the transaction cost for community itself, (economics agents producers and consumers) to provide all the information it need. It follows that if new media would not care about press freedom, community should! .So it would with people caring about faith and so on.-

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