Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 37
4
Policy and Economic Framework for Public-
Purpose Environmental Information Systems
DATA POLICY
Most environmental information systems are created and funded by
the government for public purposes, including monitoring changes in the
environment, research, monitoring the provisions of intemational agree-
ments, and informing the public about environmental issues. Because the
resulting inflation is built into innumerable judgments and
assessments of considerable public importance, it must be highly
credible. To be credible a sample of the data or data product must be
independently tested and validated (see Box 4.1 and Appendix A). As a
result, the core products of public-purpose information systems and the
processes by which they were derived have to be open to scientific
scrutiny and therefore be in the public domain. This full and open data
policy satisfies the needs of scientists, government agencies, policy
makers, and the general public. However, it tends to limit the enthusiasm
of private-sector organizations, which rely on proprietary data for
economic reasons, to be involved in public-purpose information
systems.'
Of course, environmental information systems for commercial purposes are
being established by private-sector companies and to some extent by
commercialized government agencies in other countries. The data products of
these systems are created under a proprietary regime that seeks to maximize
revenues by controlling the flow of information. Such a policy limits the
usefulness of the data to scientists as well as to other public-sector organizations
that rely on science-based products and interpretation.
37
OCR for page 38
38
The Privatization of Environmental Data
Nevertheless, some private-sector entities and Congress are urging
government agencies to increase the involvement of the private sector in
collecting and disseminating data, and creating data products (see
Chapter 2, "Private-Sector Views"~. Many government-developed
satellite technologies are sufficiently mature that private-sector
companies can profitably enter the remote-sensing industry by launching
their own satellites or by developing new applications for commercial
and public-sector customers. However, once established in the industry,
private-sector organizations often do not want the government to
compete with them by continuing to collect observations or to produce
OCR for page 39
Policy and Economic Framework
39
and disseminate information products. This view has been echoed by
Congress in bills authorizing funding for federal agencies,2 and in
legislation forbidding agencies from competing with the private sector
(see Box 2.2~. Congress is seeking to create a smaller, more efficient
government by transferring agency functions to the private sector (i.e.,
privatization; see Box 1.~) to the extent possible. The critical question is
how far can privatization go without jeopardizing the goals of a public-
purpose environmental information system?
Mechanisms for involving the private sector in government
operations include (1) contracting out data collection or services, (2)
establishing partnerships to collect, produce, and disseminate data and
information products, and (3) privatizing the government function. ~ the
case of contracts a commercial vendor can be required to act as an agent
of the government and thus abide by the government's policy of full and
open access. With public-private partnerships, a data policy must be
negotiated that permits commercial objectives to be achieved while
producing the credible data that the public sector needs. Because the
economic and data policies of the public and private sectors are so
different, successful public-private partnerships are difficult to create.
Finally, under privatization the private sector gains complete control of
what was the government function and sets the terms of access. In such
cases the public sector becomes one of several paying customers,
although certain segments (e.g., researchers) may receive data, products,
or services at discounted prices.
The roles and potential conflicts among stakeholders in
environmental information systems created purely or partly for public
purposes are descnbed below. Many of these conflicts derive from the
well-known transition in the development of a new technology from an
exploratory stage of basic research and demonstration to a mature stage
2Recent legislation noting the undesirability of government competition
with the private sector includes National Aeronautics and Space Administration
Authorization Act of 2000, Public Law 10-391; National Defense Authorization
Act for Fiscal year 2000, Public law 106-65; National Weather Service and
Related Agencies Authorization Act of 1999, Report 106-146 to accompany
H.R. 1553, 106th Congress, 1st session; and Department of Interior and Related
Agencies Appropriations Bill, 2001, Conference Report on H.R. 4578, House of
Representatives, September 29, 2000.
OCR for page 40
40
The Privatization of Environmental Data
of commercial application.3 Government agencies commonly fund the
exploratory stage because the investment cost and risk are high. Once the
technology is well understood and reliable (the mature stage), private
enterprise is more likely to develop applications and products. Core
products of environmental information systems tend to be situated at just
such a transition, when prototypes developed with research funds
demonstrate a potential for many applications, some clearly public, but
others of commercial value.
COMPATIBILITY OF OPEN ACCESS WITH A
COMPETITIVE MARKET
This section presents the rationale for the following conclusions: (1)
the Junk and roots of the information Dee should be publicly funded to
ensure that credible and dependable core products are made available on
a full and open basis; (2) information derived from these core products
should be distributed through value-added branches by a combination of
public and commercial organizations serving different communities of
end users; and (3) under certain conditions public-sector purchase of
commercially available data and information services may be appro-
priate. The argument depends on economic considerations (i.e., the
conditions under which competitive or monopolistic markets are likely to
form) coupled to the particular requirements and realities of shared,
public-purpose information systems.
Economic Characteristics of the Provision of Environmental
Information
The provision of environmental information differs from standard
production activities in two ways:
1. The marginal cost of distributing a copy of the information is
typically very small, sometimes even negligible, compared to the initial
cost of collecting and synthesizing the data and producing an information
3G.A. Moore, 1999, Crossing the Chasm: Marketing and Selling High-Tech
Products to Mainstream Customers. Harperbusiness, New York, NY, 227 pp.
OCR for page 41
Policy and Economic Framework
41
product. In economic teas this phenomena is referred to as declining
average costs.
2. The scientific enterprise requires that basic researchers subject
their findings, including a description of the data used and the models
and methods of analysis, to peer review. The precise texts of articles and
books may be subject to copyright, but the substance of the material must
be made available to all parties willing to pay the incremental cost of
distribution (e.g., the cost of a subscription or the price of a book). Thus,
the production of scientific information is nonexclusionary. Furthermore,
scientific information is nonrivairous because providing the information
to one party does not diminish the information available to another party.
A public good, such as scientific information, is both nonexclusionary
and nonrivairous.
The first (declining average costs) is a property of the technology of
producing information products, whereas the second (public-good nature
of information) is largely a property of our scientific institutions. Thus,
one can imagine another system in which all the products of all scientific
research could be copyrighted and patented and the underlying data and
analysis kept largely secret.4 However, science would not necessarily
flourish under such a system.
The declining-average-cost character of the environmental enterprise
has the well-known implication that, if the organizations producing the
information products are private and for-profit, there will be a tendency
to create monopolies, with all their attendant inefficiencies.5 ~-
efficiencies will also occur if the organizations are not-for-profit but
recover all their costs Tom user fees (e.g., commercialized government
agencies in Europe). Consequently, in the United States the primary
producers of environmental information are government agencies
subsidized by tax dollars and not-for-prof~t research organizations (e.g.,
research universities) funded by foundations and government grants.
4Given the ease of copying and transmitting information, keeping scientific
secrets and enforcing copyright and patent laws is only partially feasible.
5Not all markets are created equal, and some are much more efficient than
others. The ideal benchmark case is the 'perfectly competitive market" in which
prices are equal to marginal costs and therefore product sales occur at the
efficient level. In other words, a market is efficient when all buyers willing to
pay at least the marginal cost of a product are actually successful in making their
purchases.
OCR for page 42
42
The Privatization of Environmental Data
The public-good aspect of environmental information also makes it
difficult, if not impossible, for commercial companies to efficiently
provide the information. Thus, there are two economic arguments for
relying on the public sector (government agencies and private not-for-
profit entities) to collect and synthesize core information (i.e., the roots
and trunk of the information system tree).
On the other hand, value-added products and services tailored to
particular clients may not be characterized by declining average costs
and may easily be made exclusionary (even if they remain nonrivairous).
As a result, there is a greater potential for competition in the value-added
sector (the branches of the information tree), mitigating the inefficiencies
of monopoly. Individual firms will retain some degree of monopoly, so
one cannot expect to achieve the ideal efficiency ascribed to perfectly
competitive markets. Similarly, public-sector organizations producing
value-added products are also subject to inefficiencies due to
"dysfunctional" incentives.6 Society is thus forced to make case-by-case
analyses of the branch activities and to search for the best institutional
structures appropriate to each case. Unfortunately, the ambiguities and
uncertainties inherent in these cases make them subject to ideological
biases, such as a general distrust and dislike of government intervention,
or conversely, a naively excessive faith in the capabilities and altruism of
public servants and academics.
The Rationale for Public Funding for the Trunk and Roots
As noted above, the economic rationale for public funding of the
trunk and roots of the information tree derives from the public good
nature of environmental information, and the characteristic of declining
average costs. The public good aspect can be summarized as follows.
The core products of the trunk are intended to help establish
facts for all. It is highly undesirable for society that their use for
public purposes be encumbered by intellectual property rights. The
public benefits from scientists combining facts freely from many
different sources to create new knowledge or understanding. Although
6C. Wolf Jr., 1988, Markets or Governments. Choosing Between Imperfect
Alternatives. MIT Press, Cambridge, Massachusetts, 220 pp.
OCR for page 43
Policy and Economic Framework
43
intellectual property rights enable individual creativity and industry to be
rewarded in the marketplace, they are fundamentally a restrictive practice
that distorts the exchange of information in ways that can have
undesirable side effects, particularly on the conduct of environmental
sciences For example, requiring scientists to obtain multiple permissions
from possibly unknown sources before working with the data could
become very burdensome, even if the fee is negligible. [f the
administrative burden is too great, scientists will abandon the research
and the societal benefits Tom the potential new knowledge will not be
reaTized.8 Consequently, the greatest benefit from use of taxpayer
resources comes Tom full and open access to scientific information.9
Recommendation. Environmental information systems that
are created by the U.S. government to serve a public purpose
should continue to establish facts that are accessible to all. To
facilitate further distribution these facts should be made
available at no more than the marginal cost of reproduction
and should be useable without restriction for all purposes.
The aspect of declining average cost leads to the following
observations:
Homogeneous product markets lead to monopolies. ~ a
homogeneous product marketi° the products desired by customers are
identical and the only avenue for commercial competition is pnce. In the
7For example, see NRC, 1997, Bits of Power: Issues in Global Access to
Scientific Data. National Academy Press, Washington, D.C., p. 132-188.
The social returns to investment in basic scientific research far exceed
those for the average investment dollar. See Council of Economic Advisers,
Economic Report of the President 1994, p. 190; C.I. Jones, and J.C. Williams,
1998, Measuring the Social Return to R&D, Quarterly Journal of Economics, v.
113~4),p. 1119-1135.
9K.J. Arrow, 1962, Economic welfare and the allocation of resources for
invention, in The Rate and Direction of Inventive Activity, Universities-National
Bureau Committee for Economic Research, Princeton University Press,
Princeton, New Jersey, p. 618.
than example of a homogeneous product market is the market for a firm's
stock shares.
OCR for page 44
44
The Privatization of Environmental Data
long run only a single firm can operate profitably in such a market.
Continued profitability requires enforcement of restrictions on the
redistribution of products by customers. Once a monopoly is established,
prices will exceed marginal costs. As a result, the total number of sales
will be lower than they would be if price equaled marginal cost. For
public-purpose information, this means a reduction in social welfare.
· The total cost of the information system is dominated by the
costs of making the observations and assembling, validating, and
synthesizing them into dependable, scientifically valid, well-
documented products. For the shared environmental systems under
discussion measurements must be made using a variety of remotely
sensed and in situ instruments, positioned both throughout the United
States and in other countries, and combined with retrospective data. The
infrastructure, communications, and personnel costs of participating
facilities are high compared with the cost of disseminating the resulting
data and information products.'
· The cost of making and distributing additional copies of each
core product is negligible compared to the cost of generating the
master copy. Although this situation has always been the case, copying
and distributing data over the Internet or on other digital media has
greatly reduced the cost of disseminating data and products relative to
printed publications and older media such as microfilm. Costs of storing
and accessing large volumes of data electronically continue to decline,
making it feasible to copy whole collections of retrospective data, once
they are in electronic forrnat.~3
.
It is very difficult for a commercial company to recover the
cost of generating core products by selling them in a competitive
market, without imposing restrictions on their re-use by customers.
The following scenario illustrates the negative impact of relaxing
Resee C. Shapiro and H.R. Varian, 1999, Information Rules. Harvard
Business School Press, Boston, Massachusetts, p. 25.
i2An example of the high cost of data collection is given in USGS, 1998, ~
New Evaluation of the USGS Streamgaging Network: A Report to Congress, 20
pp. See also C. Shapiro and H.R. Varian, 1999, Information Rules. Harvard
Business School Press, Boston, Massachusetts, p. 3.
This is true as long as copying does not involve a transition to new
technology. Migrating data to new media is generally very expensive. See NRC,
1995, Preserving Scientific Data on Our Physical Universe. National Academy
Press, Washington, D.C., 67 pp.
OCR for page 45
Policy and Economic Framework
45
enforcement restrictions on the homogenous market discussed above.
Suppose that a commercial organization (the primary producer) is
responsible for producing a particular core product and recovering the
primary cost of production (say $100,000,000) through sales. For the
organization to break even, it must set a sales price at least equal to the
primary cost divided by the projected number of sales (say 10,000~. Tn
this hypothetical case the minimum sales price would be $10,000 per
copy. But what if the conditions of sale did not restrict further
reproduction by purchasers? In that case, the product will not be
commercially viable. Without such a restriction an intermediary for a
group of potential users (say 100 in number) can purchase a single copy
at the primary price, reproduce that copy at negligible cost, and recover
expenses ($10,000) by distributing a number of copies (say 100) among
the group at the greatly reduced secondary price of only $100 per copy.
Such "leakage" cuts into primary sales and reduces the total revenue of
the unfortunate primary producer. Even worse, the $100 secondary price
is also unrealistic, because it is vulnerable to a similar strategy pursued
by another intermediary who purchases one copy at $100 but sells 10
copies at $10 each. Such competition can be expected to Tower the street
price until there is no possibility of the primary producer recovering even
a significant fraction of the total cost of production. Under these
circumstances, a Tower limit to the street price is set by the marginal cost
of reproduction (i.e., by the additional cost to an intermediary of making
a single extra copy).
The social return generated from the trunk and roots of
public-purpose information systems may dwarf private returns.
When a for-profit firm produces and sells data or information, even
under patent and copyright protections, it may not capture in its revenues
all the value that it creates for society. in this case (by definition) the
total return to society exceeds the private return to the firm. Thus it is
possible that the private return from a contemplative activity might be
less than the cost, in which case the activity would not be undertaken by
the firm, whereas the social return might exceed the cost, and hence the
activity should be undertaken by society. As an extreme example, private
production of a pure public good might yield a large social return but no
private return whatsoever.
Conclusion. Because of the cost structure of public-purpose
environmental information systems and the need for their
OCR for page 46
46
The Privatization of Environmental Data
scientific validity, the public interest is best served by funding
the trunk and roots out of taxpayer resources and by providing
fuR and open access to a set of reliable core products presenting
factual information that is potentially useful to a broad range of
user groups.
The Potential for Commercializing Branches
The branches provide an opportunity to develop differentiated
products markets for which the prospects for rigorous competition
are likely to be better. In a differentiated products market several fibs
produce similar but distinct products (much like the market for compact
cars). ]4 Determining when a competitive outcome is likely involves a
two-step analysis. First, the demand and cost characteristics of each
product have to be identified to determine the maximum number of
products that can be profitably sold. All else being equal, a market in
which demand for each product is "large" can support more vendors;
conversely, as average costs increase (due to fewer sales over which the
fixed costs can be spread) fewer entrants will be expected. In particular,
if demand is not adequate to cover the average costs for only one firm,
then no private-sector firm will be inclined to enter the market. For
example, scientists alone are unlikely to constitute a viable market.
Second, once the number of likely participants is identified, the nature of
their interaction has to be considered. Intuitively, as the number of firms
increases so does the degree of competitiveness. If a market is large
enough to support only one firm and thus the sale of a single product,~5 it
is likely that the monopoly firm's prices will exceed its costs and thus
reduce sales relative to the competitive benchmark. Multiple firms
competing in a market are also more likely to create products that meet
customer demands for quality and timeliness.
i4If it is cheaper for one firm to produce this set of products, compared to
several firms each producing a subset, then the analysis reverts to our discussion
of homogenous products (i.e., the monopoly outcome). To simplify the
discussion we assume here that each firm sells a single product.
isIf the full panoply of products were sold in this market by an equal
number of firms, demand would be insufficient to cover the costs of each firm.
By shrinking the set of products sold, customer demand would be shifted to the
product sold by the monopoly firm, allowing it to recover costs.
OCR for page 47
Policy and Economic Framework
47
The community of end users of the core products and their
derivatives is diverse (see Box 3.3~. It is impossible to envisage all the
present and future applications of the information provided by the core
products. Hence a flexible system of branches for distributing that
information is essential for maximizing the societal benefit of the
information system (see also next paragraph).
For some communities of end users, competing commercial
enterprises that add value to the core products and other sources of
information are likely to flourish. Each distinct market delineates a
different branch on the information tree. For most end users, factual
information in a core product has to be extracted, put in context, and
combined with other facts relevant to the purpose at hand. Meeting such
needs for a community of similar users can greatly increase the value of
the core product itself, presenting a sales opportunity for enterprising
intermediaries. In general, the diversity of customer needs and
preferences within the community will enable product differentiation and
individualized services tailored to those products. The larger the total
demand the more competitive the market is likely to be. The specialized
skills and market information that are necessary to run such a business
successfully are often not available within a government agency. In such
cases, private-sector operation of the corresponding branches may be
appropriate.
On the other hand, public-sector operation of a branch is appropriate
when the application is directly related to performance of the agency
mission. ~ addition, the scientific research community, which has a
noncommercial rewards system, may choose to organize their own
branch dedicated to fills and open access and paid for out of research
funds. The products created by these basic research branches are likely to
spawn additional specialized products as understanding of environmental
processes improves or new instruments are developed. As they mature,
some of these new products may open new markets for commercial
application.
Conclusion. Marketing and distribution of core products and
creation of value-added products is best provided by a variety of
organizations, self-organized to meet the needs of different
communities. Some of these value-added branches will exercise
proprietary rights to products and services and operate for
profit, whereas others will allow full and open access. In the
1
OCR for page 48
48
The Privatization of Environmental Data
latter case the source offending will depend on circumstances,
but may be public, charitable, or commercial. Yet other branches
will be maintained by government agencies for public health and
safery or operational purposes. Determination of the mode of
operation that is most beneficial to society requires a detailed
ongoing analysis of the specific circumstances for each branch,
taking into account user needs for data access and standards as
well as considerations of market size and differentiation.
The Potential for Purchasing Data From Commercial Entities
Provided certain conditions are met, government agencies may
choose to purchase observational data from commercial entities for
use in the core products. To be useful for such purposes the purchased
data must be free of restrictions on use and redistribution and they must
meet stringent quality standards (e.g., calibrated and adequately
documented). Any compromises on documentation and openness to
scientific audit (see Box 4.1) may materially detract from their value. In
addition, the commercial vendor's assurances of a continued supply of
data must be sufficient to justify government investment in the
preparation of products that make use of them. Under these conditions, a
competitive procurement based upon careful specification may lower
costs below those of government operation of the same root, and hence
be to the public benefit.
The principles outlined above for analyzing the competitiveness of
. . ~ ~ . . . .
1
homogeneous or d~terent~ated products markets within which such a
procurement would take place are still applicable, although the term
"product" now refers to the purchased data, and the government is a
customer, not a supplier. For a market that is not fully established the
information necessary to apply the principles may be incomplete.
However, even existing established competition among suppliers is not
conclusive evidence that such competition would apply to the
government procurement. indeed, the number of suppliers may decline if
the government is the sole buyer for a distinct product. This is because
the government data policy and quality specifications may be so stringent
that they impose substantial costs to a potential vendor, in addition to the
same fixed cost of satisfying the needs of other customers. If the
government were the sole buyer for this distinct product, a new
OCR for page 49
Policy and Economic Framework
49
homogeneous-product market would be created in which only one seller
could survive. This conclusion may change, however, if the government
were to procure a number of similar but distinct high-quality products. In
such a differentiated products market two or more suppliers migh be able
to operate successfully.
Conclusion. Purchasing full rights to data, including rights to
downstream uses, from commercial entities may be an option for
meeting specific observational requirements of public-purpose
information systems.
REQUIREMENTS OF PUBLIC-PURPOSE ENVIRONMENTAL
INFORMATION TREES
Based on the data policy and economic considerations outlined
above, the committee concludes that environmental information systems
created purely or partly for public purposes must meet certain require-
ments. Essential characteristics of the roots are:
scientifically valid observation systems yielding quantitative data
placed in the public domain;
· measurement of multiple variables at nationally and inter-
nationally distributed locations by a mixture of directed and volunteer
organizations; and
public funding with possible purchase of data from the private
sector under appropriate circumstances.
Characteristics of the trunk include the following:
systematic validation and synthesis of data into a limited
selection of core information products that directly or indirectly serve all
user groups;
· full and open access (provided without restriction for no more
than the marginal cost of reproduction) to these products and the
processes by which they are derived; and
· public funding.
OCR for page 50
50
The Privatization of Environmental Data
Characteristics of the branches include the following:
· development based on free or Tow-cost access to core products
from the Bunk;
value-added products for each distinct branch;
a mixture of public domain and proprietary data policies; and
· multiple operating organizations (e.g., universities, data centers,
libraries, commercial vendors, government programs).
Such clear-cut distinctions between the trunk and branches do not
always exist in practice. Determining which databases are part of the
trunk and which are part of the branches must be decided case by case,
using the characteristics described above. Most important for the present
discussion is a classification that helps maintain full and open access to
data required for scientific purposes and helps promote vigorous com-
petition where data are subject to proprietary restrictions.
Characteristics of the leaves are:
· great diversity;
· changing numbers and identities resulting from new, commonly
unforeseen uses of environmental information; and
· rapidly increasing practical importance due to the growing public
awareness of environmental issues.
Of course, in the real world environmental information systems
cannot be described as a single tree or even a grove of trees. Rather, the
roots, trunk, and branches of different information systems, some of
which are operated by the private sector or commercialized government
agencies, are interconnected. Data from an individual instrument may
feed into the core products of several trees, which in turn contribute to
the core and value-added products of other trees. Users influence in
varying degrees the requirements by which several trees evolve.
However, the full societal benefit will only be achieved if subsequent
uses of data or products from individual trees are permitted freely.
information systems designed to fulfill certain public objectives,
such as the advancement of scientific understanding, supply products of
which the use could be but should not be restricted. Without restrictions
no private firm can recover its investment in the information system.
OCR for page 51
Policy and Economic Framework
51
With restrictions the private sector can profitably supply information
products. Revenue will exceed costs but the low level of unit sales will
fait to maximize the net social benefits derived from the information
system. In contrast, public agencies can subsidize creation of the system
and deliver information at its marginal cost to all potential users, thereby
maximizing net social benefit.
Recommendation. The practice of public funding for data
collection and synthesis should continue, thereby focusing
contributions of the private sector primarily on value-added
distribution and specific observational systems.
OCR for page 52
Representative terms from entire chapter:
core products
