Saturday, May 15, 2010

Copyright and Information Asymmetry

I'd been reading Michael Geist's pieces on the new Canadian copyright bill—which looks to be following the DMCA model—and I had a thought about the debate.
The debate over copyright is as much about information asymmetry as anything else.

Information asymmetry, in economics, is the idea that a purchaser and seller have inequal amounts of information about the value of a good. A used-car seller knows more than the buyer about the soundness of the vehicle, for example. The buyer might not know whether or not the car is a "lemon", so the price he pays isn't necessarily going to correspond to the actual value of the car. Ditto with everything from home loans to first dates; people don't know everything they need to know. In a lot of cases, the seller is deliberately keeping them from knowing it.

Creative works, especially narrative creative works, are much the same. If you're buying a game, movie, album or book, you aren't generally going to know how good it is until you've already bought it. By then, of course, it's too late; you can't get your money back at the theatre for a movie you hated, and you can't get a refund on a terrible game. If it's good, then great! But if it's bad, you're stuck.

In turn, the presumption that animates enforcement copyright law is that if you could view a work for free, you wouldn't pay for it. Remember, it's not theft per se; nobody is deprived of the use of a good, just the ability to control who can gain access to the work. You don't pay, you don't watch. (Or listen. Or play. Or whatever.)

Since these creative products are information, then, that means consumers are inevitably and inescapably operating at an information deficit. They don't know that the movie is worth anything to them until after they've seen it—but by then they have already seen it! And if they've seen it, why on earth would they pay for it? The whole industry depends on information asymmetry to work. People can never pay what something is worth to them. They're always at risk of being suckered. Always.

Then again, perhaps it is the presumption that is wrong. Perhaps consumers would, if prompted, pay what they think that something is worth. Homo Economicus wouldn't, since he wouldn't part with a dime he didn't have to if he didn't have a gun to his head. But real people don't think that way.

It makes me wonder. If you took away the barriers, would people pay what something is worth? Is the presumption wrong? Or will consumers always be on the edge of getting suckered?

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