1. Economics of information
Muhammad A. Ganaee
MPhil Minhaj University

2. Definition of Information
All the facts, conclusions, ideas, and creative works
of the human intellect and imagination that have
been communicated, formally or informally, in any
form.
(Online Dictionary for Library and Information Science)

3. Definition of economics
The word “economics” comes from the Greek oikos, meaning
“household”, and nomos, meaning “rule” or “governance”. So
economics means “rules of household”.
A social science concerned chiefly with description and
analysis of the production, distribution, and consumption of
goods and services.
(Merriam-Webster Dictionary)

4. Economics of Information
The economics of information is a branch of
microeconomic theory that studies how information
affects an economy and economic decisions.

5. Economics of information: an
introduction
First emerges in 1960s
Fundamental changes in world economics
Emergence of computer technology
Economists Library and information scientists
Economists tend to study the nature of
decision making, the distribution of
information, the flow of information,
and the role of the “information
sector” in a market context.
Library and information scientists tend
to look at notions of what
information is and at information
products as items bought, sold, used,
copyrighted, made public, or
provided, particularly in libraries.
Both sets of researchers attempt to refine models to explain for price, costs,
benefits, values, and economic impacts.

6. Uses of the word "information"
1. Information-as-process
– The act of informing
– communication of news of some fact or
occurrence; the action of telling or fact of
being told of something
{Oxford English Dictionary, 1989, vol. 7, p. 944).

7. Uses of the word "information”
continues…
2. Information-as-knowledge
– what is perceived in "information- as-process"
– the "knowledge communicated concerning
some particular fact, subject, or event
(Oxford English Dictionary, 1989, vol. 7, p. 944).

8. Uses of the word "information”
continues…
3. Information-as-thing
– Used for data and documents
– regarded as being informative
– having the quality of imparting information
(Oxford English Dictionary, 1989, vol. 7, p. 946).

9. The Nature of Information
1. Creation
created for reasons beyond the market
Like for self-expression, space between creator/consumer disappear
1. Intangibility
Information is intangible with no set unit
of measure.
2. Heterogeneity
a single kind of information can have
more than one form).

10. The Nature of Information continues…
4. Time
• highly perishable (for example, live news)
4. Public good
• is not consumed by being used
• can be resold
• given away with no reduction in its contents

11. Economic roles of information
1. A Substitute for physical entities
– Telecommuting replaces the movement of people
– Exploration through imaging replaces exploration
through surgery.
1. Used for influence
– Influence, persuade
– Advertising serves buyers & sellers about products.
1. Essential in education
– serving the process of learning
– Supplement teacher by providing material

12. Economic roles of information
continues…
4. A substance of cultural enrichment
– People are willing to pay for it, which is the basis
for the entertainment industries.
4. As a product
– produced as a package.
– Can be a service
– can be a capital resource

13. The macroeconomics of
information
• The branch of economics that deals with a
nation’s total economic behavior.
• role of information in national economies
– in the distribution of the workforce among
various types of activities and functions.
• It also relates to effects on national
economic policies.

14. The macroeconomics of
information(continues…)
• Background
– Mark Uri Porat (He is best known for his doctoral work in
which he created measures of the information economy).
– In 1977, added information sector in national economies
• Agriculture
• industry
• services
– Four categories of information functions:
1. Management functions
2. Support functions (primarily clerical in nature)
3. Equipment functions (hardware and software)
4. Substantive functions (involved in the production and distribution
of information)

15. The macroeconomics of
information(continues…)
Categories Examples
Information production Research and Development
Authoring and composing
Information distribution Publishing and Libraries
Television and Movies
Information transactions Telecommunication
Banking and brokerage
Information equipment Computer hardware and software
Telecommunications
Categories for Information industry

16. The macroeconomics of
information(continues…)
National policy planning
gain economic values, information based economy
Values from use of information
– Better workforce, more capable of dealing with problems.
– Better product planning and marketing, based on more
knowledge about consumer needs.
– Better engineering, based on availability and use of scientific
and technical information.
– Better economic data, leading to improved investment decisions
and allocation of resources.
– Better management from improved communication and decision-
making.

17. The macroeconomics of
information(continues…)
Barriers to use of information
– Costs are incurred in acquiring information.
– return is over long term, expenditure is made
immediately
– Information is not directly productive
– Results not clearly attributable to the information
– information as an overhead; subject to cost-cutting

18. The micro-economics of
information
• The branch of economics that deals with
the behavior of the individual producer and
consumer, particularly as decisions are
made with respect to the allocation of
limited resources.

19. The micro-economics of
information
(continues…)
The costs of information
1. Information must be created, by generation and
processing of data; these are authoring functions.
2. It must be assessed for publish ability; these are
editorial functions.
3. It must be processed for the generation of a master;
these are composition functions.
4. Products and/or services will be produced.
5. The products and services will be marketed.
6. They will be distributed.

20. The micro-economics of book
publishing
percentages
Royalties 10%
Capital costs 30% (editorial 5%, composition 25%)
Delivery costs 30% (production 14%, distribution 16%)
Discount 30% (for sellers)
• creation of an author
• Return is royalty
Estimates can be made of the costs for print form distribution

21. The micro-economics of
scholarly journal publishing
• research faculty member (20%-50% time)
• two or three research articles/year
• the rewards not income
– the academic advancement, reputation
Estimates of functional costs
Capital costs 61% (editorial 32%, composition 29%)
Delivery costs 39% (production 26%, distribution 13%)

22. The micro-economics of databases
and digital libraries
• Databases & digital libraries
• Electronic publication
– digitized text
– numerical data files
– Images
– reference databases
– bibliographic catalogues
• costs of the producer and distributor
• costs by the users or by libraries, in terms of
staff time, resources used like computers and
internet charges.

23. Economics: things versus
information
Things Information
When a thing is sold, seller
owns it.
Idea, blueprint is sold, seller
still possesses it.
Things can be replicated only
through the expense of
manufacture.
Information can be replicated
almost zero cost without limit.
Things wear out, their
performance deteriorates with
wear and tear.
Information never wears out,
although it can become obsolete
or simply untrue.
A thing exits in a location, and
therefore a unique legal
jurisdiction.
Information is nowhere and
everywhere.

24. Economics: things versus
information
Things Information
diminishing returns: doubling farm
labor does not double the output
from the land.
Increasing returns: big factories have
lower unit costs than small
factories.
Information has perfectly increasing
returns: spend the money to learn
something once and that
knowledge can be reused at
additional cost forever; double the
number of uses and cost per use
halves.
Economics of things is consistent with
efficient markets: fields and
factories can compete against each
other as a price taker in
competitive markets.
The economics of information
requires imperfect markets: limit
the access of others to is by
copyright, patent, secrecy. If there
is limit, it is a monopoly. Either
way information does not have
like fields or factories.

25. References
1. Evans, Philip and Wurster, Thomas S. (1999). Blown to Bits: How
the New Economics of Information Transforms Strategy. Boston:
Harvard business school press. ISBN: 0-87584-877-x
2. BUCKLAND, M. K. (1991). Information as thing. Journal Of The
American Society For Information Science, 42
3. Wheeler, W. (2011). ECONOMICS OF INFORMATION: A BRIEF
INTRODUCTION. Progressive Librarian, (36/37), 42-50.
4. Merriam-Webster Dictionary (online). Available at:
http://original.search.eb.com.vlib.interchange.at/dictionary?
va=economics&x=0&y=0 (accessed on 14th December 2012).
5. Reitz, Joan M. Online Dictionary for Library and Information
Science. Available at: http://www.abc-
clio.com/ODLIS/odlis_i.aspx#information. (accessed on 14th
December 2012).

26. References
6. Dictionary.com. Available at:
http://dictionary.reference.com/browse/economics?s=t. (accessed
on 14th December 2012).
7. Wikimedia Foundation. (2012), Archive Available at
http://en.wikipedia.org/wiki/Information_economics (Accessed:
14th December 2012).
8. Joseph E. Stiglitz (2000). "The Contributions of the Economics of
Information to Twentieth Century Economics," Quarterly Journal
of Economics, 115(4), pp. 1441-1478.
9. Marchant, Mary A.; Snell, William M.. "Macroeconomic and
International Policy Terms". University of Kentucky. Available at:
http://www.ca.uky.edu/agc/pubs/aec/aec75/aec75.pdf. .
(accessed on 14th December 2012).

27. Economics of information
Questions?