Licensing Geographic Data and Services (2004) / Chapter Skim
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6 Economic Analysis
6 Economic Analysis
Pages 141-156
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From page 141... ...
6.2 ACHIEVING THE GOAL OF ECONOMIC EFFICIENCY The first step in any economic analysis is to specify goals: What is society trying to accomplish? Like most commentators, we identify economic efficiency as an important goal.
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From page 142... ...
Unless otherwise noted, this report assumes that FOIA and OMB Circular No. A-130 require marginal cost pricing, and, for convenience, we adopt the phrase "marginal cost of distribution" to represent any of the legally or economically precise terms listed in the preceding sentence.
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From page 143... ...
It is also important to recognize that users of geographic data include not only final consumers but also other producers of information products or services, so that efficient distribution is likely to contribute to efficient production.5 In particular, the ability of other vendors, academic researchers, and government agencies to use geographic data in their own research and development activities may substantially enhance their incentives to invest in the creation of valuable new geographic products and services. Unless the conditions for efficient distribution are met, therefore, not only will some consumers fail to obtain information that they value at more than its incremental cost but the costs for some producers also will be increased.
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From page 144... ...
6.2.1 Other Sources of Inefficiencies in Information Markets The deadweight loss that results when the price of information exceeds the cost of distribution is not the only type of inefficiency that can occur in a market for information. This section describes six additional inefficiencies that also can contribute to deadweight loss.
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From page 145... ...
Even though users may try to disguise the true value of the information to them, licensors sometimes can use objective criteria to identify consumers willing to pay higher prices.11 Nonetheless, effecting price discrimination is generally quite difficult and, even where it is accomplished, it is unlikely to satisfy fully the conditions for efficient production and dissemination of information. Fourth, it may be hard to exclude nonpaying users, especially when paying customers choose to share information.
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From page 146... ...
compared to conventional sales in which the vendor transfers complete title at the time of payment.15 Strategies for reducing transacttion costs include (1) widespread adoption of standardized contracts and other business practices, (2)
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From page 147... ...
The suite of workable options in each case is determined by what the agency is trying to achieve, and will be influenced by whether the agency's mission requires broad redistribution, limited redistribution, or only internal use. In practice, most of the potential policy benefits from licensing tend to involve the last two categories.
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From page 148... ...
When private firms have superior information about potential demand for data, it is likely to be economically desirable to decentralize the investment decision to dozens and perhaps hundreds of private-sector entrepreneurs.19 Moreover, large specialized private-sector data producers may benefit from economies of scale and scope that might not be available to individual government agencies for which data acquisition are a small part of their missions. Markets also guard against the possibility that government-funded programs will take on a life of their own; forcing actors to invest their own money eliminates the danger of program managers, employees, or outside contractors acquiring a personal stake in continuing unproductive programs.
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From page 149... ...
6.4.2 Economic Disadvantages of Licensing The principal economic disadvantage of obtaining data through licensing, rather than through outright purchase, is that the licensing restricttions limit the ability of an agency to distribute the data it has acquired in an economically efficient manner. Whereas efficiency in distribution _____________ 20At the limit, local governments would encourage very small groups to organize on their own.
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From page 150... ...
Government can almost always avoid the deadweight loss associated with exclusionary pricing and inefficiencies in distribution of information by using methods to procure data that permit unrestricted redistribution and providing these data to any user willing to pay the marginal cost of reproduction. Avoiding inefficiencies in production is likely to be more difficult.
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From page 151... ...
Agencies with prominent Web sites may be able to extract price concessions in return for posting advertisements or links to private vendors.26 6.6 LICENSING GOVERNMENT DATA TO THE PRIVATE SECTOR We have already explained why efficient distribution requires government to make data available to all users who are willing to pay at least the marginal cost of distribution.27 Nonetheless, there may be practical _____________ 24Agencies occasionally may pay a premium when there is no time to collect an independent dataset. With appropriate planning, such cases should be few and far between.
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From page 152... ...
Subject to these constraints, agencies should attempt to achieve efficiency in distribution by avoiding excessive user fees and unnecessary use restrictions.29 6.7 SUMMARY Society makes geographic data investment decisions through two very different institutions: governments and markets. Deciding which sector should acquire and distribute a particular product has profound implications for economic efficiency.
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From page 153... ...
Efficiency in distribution occurs because the agency often has significant leverage to demand license terms that permit widespread dissemination on favorable terms, perhaps by requiring the vendor to donate its data to the public after a fixed period of years, or otherwise limiting the private partner's ability to impose high prices. Alternatively, government might bear the entire cost of data production and acquire unlimited rights in order to promote efficiency in distribution.
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From page 155... ...
Additionally, Spatial Mart automatically tracks licensing terms in each transaction, and manages licensee payments and royalty distributions for any original and derivative works. Because of this, some commercial data suppliers now allow free downloads of substantial quantities of geographic data for product development purposes.
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From page 156... ...
156 LICENSING GEOGRAPHIC DATA AND SERVICES Mart's electronic bidding system would have recorded his technical and licensing preferences, any additional purchaser/vendor contract preferences, and then invited qualified vendors to submit their bids by a specified date. Bob's dream is this: Can an operational infrastructure supporting efficient licensing and transaction interactions be developed that is open to all sellers and buyers of geographic data and services and will support an active and thriving marketplace?
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