March 07, 2014
Getty Images opens to noncommercial use
October 31, 2013
Everything (of value) is for sale
There's a truism that bothers many (except economists): if there is a good or service that has value to some and can be produced at a cost below that value by someone else, there will be a market. This is disturbing to many because it is as true for areas of dubious morality such as sexual transactions, clear immorality (human trafficking and slavery) as it is for lawn mowing and automobiles.
Likewise for online activities, as I've documented many times here. You can buy twitter followers, Yelp reviews, likes on Facebook, votes on Reddit. And, of course, Wikipedia, where you can buy pages or edits, or even (shades of The Sopranos), "protection".
Here is an article that reports at some length on large scale, commercialized Wikipedia editing and page management services. Surprised? Just another PR service, like social media management services provided by every advertising / marketing / image management service today.
August 23, 2012
There's a market for everything
This is not a profound observation, but one that is useful to keep in mind: if there's a transaction that is of some value to more than a handful of people, there's likely to be a market for it. This is more true than ever in the Internet age, because the costs of finding potential traders, and of executing trades, is much lower than it was just 10 or 15 years ago. The lower the costs of trading, the lower the value of things that will find markets.
One well-known example: text and banner ads that may sell for only a few cents a click.
But there are always new and fun examples. Today's: a New York Times article about the market for buying Twitter followers. Want to be as popular as Ashton Kutcher?
January 22, 2010
The problem isn't going away: who pays for open publishing?
This isn't so much a specialized incentive-centered design story as a good example of a central problem in information economics: information may "want to be free" (Barlow 1996) but it isn't free to maintain or distribute. Who is going to pay?
The arXiv project was started in the 90s as an e-print archive for rapid (pre-journal publication) of research papers in high-energy physics. Paul Ginsparg, a physicist at Los Alamos National Lab, started and maintained it for a number of years. It became a vital service for not just the original community, but for many other scholarly fields (including math, statistics and computer science). It currently houses about 600,000 articles, all freely available to anyone with an Internet connection.
Cornell University took responsibility for the project several years ago. The university librarian reports that Cornell spends about $400,000 a year to maintain and enhance this ever-growing resource, which benefits researchers across the world. It earns no direct revenue from the project. How long is that sustainable?
According to this posting in The Chronicle of Higher Education, Cornell is now asking the 200 institutions whose researchers account for about 75% of the downloads to voluntarily pay $4000 a year to support the project. Not a lot perhaps (the cost of a handful of subscriptions to journals in the related fields), but a request for an ongoing commitment to a charitable contribution. How likely is that to work? How sustainable? National Public Radio in the US receives some government funding, and fully 23% of its budget from corporate advertising. (It is called "sponsorship" because the corporations only get "announcements" and not "advertisements", but as someone whose father made his living in a Madison Avenue advertising firm doing "corporate image advertising", this is advertising. Corporations spend the money to enhance their brand image and reputation, on the belief that this increases their sales.)
July 03, 2009
What do ICDers do when they grow up?
Here is a nice article in Wired about Googlenomics, featuring my co-author and friend Hal Varian. This describes a number of ways that Google has combined vast data mining resources with economics to do some incentive-centered design.
Hal is a micreconomist par excellence, who has made important contributions to both theory and empirical work. He was one of the first economists who took the study of the Internet and related phenomena seriously.
He was my colleague at Michigan, and involved in some of the early meetings in which a group of us developed the plan to create the School of Information. The year we launched, however, he departed for Berkeley, where a year later he was dean of their new School of Information (called SIMS at the time, but since renamed). For the past few years he has been on leave from Berkeley to be the Chief Economist at Google.
August 16, 2008
Getting the price right
On the first day of college, the Dean addressed the students, pointing out some of the rules: "The female dormitory will be out-of-bounds for all male students, and the male dormitory to the female students. Anybody caught breaking this rule will be fined $20 the first time."
He continued, "Anybody caught breaking this rule the second time will be fined $60. Being caught a third time will cost you a fine of $180. Are there any questions?"
At this point, a male student in the crowd inquired: "How much for a season pass?"
From: "School Jokes", Wednesday, February 6, 2008
August 04, 2008
Can incentives make the skies friendlier?
For years, economists doing incentive-centered design have thought airport landing slots were a natural application. Indeed, one of the seminal research papers on "smart markets" (combining high-powered computation with incentives for resource allocation) was Rassenti, Stephen J., Vernon L. Smith, and Robert L. Bulfin (1982), "A Combinatorial Auction Mechanism for Airport Time Slot Allocation," Bell Journal of Economics, 13, 402-417 (Smith later won the Nobel Prize for his pioneering work in experimental economics and market design). Economists have been advising the Federal Aviation Administration for the past several years on the design of auctions for landing slots at New York metropolitan area airports (JFK, La Guardia, Newark), and this spring the Dept. of Transportation announced it was implementing a scheme to auction a small number of slots at each airport.
Today, the N.Y. Port Authority announced it would block the use of auctioned slots. Opponents claim that the auctions would raise prices and not reduce delays. Supporters claim that creating a market for scarce slots would increase competition, which would keep prices down, and put the slots in the hands of airlines who at a given time have the busiest schedules, thus reducing delay. The opponents argue that the best solution is to spend money to modernize the air traffic control system and hire more controllers.
This battle over an incentive-centered design scheme highlights key issues in many market-based allocation schemes. It is quite typical for market opponents to argue we should simply increase supply: but without some sort of value-based mechanism to allocate supply, simple economics and lots of history show us that increasing supply will just lead to more overuse and continuing congestion. (See urban highway development; see the continued overload of Internet capacity.)
It is also common for market opponents to argue that creating a market will increase prices. This is rarely true for a well-designed market. By increasing the efficient use of the scarce resource, waste and cost should be reduced, and overall, assuming some degree of competition, prices tend to come down. In the case of landing slots, the slots that will charge high prices are presumably during peak times: airline prices are already higher then, and even if they do raise a bit, we should see prices during off-peak times fall as those who don't get peak slots compete for passengers off-peak. Higher peak prices and lower off-peak is one of the oldest, and most effective ways to smooth demand over limited capacity, and leads to better use of an expensive facility (and lower overall costs to consumers).
I haven't seen what DOT (or whoever would run the auctions) would do with the revenue. Fundamentally, though, this is not a cost: no resources are being used up by the auction (well, a few people to run them). The revenues could be transferred right back to the airline industry (say through reduced landing taxes) to keep the overall cost of running airlines the same.
I don't know that the particular design of the slot auctions was good: that is, how much it would increase efficiency, what would be done with the revenues, whether they would be run with a lean team rather than a bulging bureaucracy. But the arguments that have been raised by opponents seem to be a mix of misunderstanding about resource allocation, and the anguished cries of those who have market power and control over existing slots that they might actually face more competition.
February 04, 2008
The Industry Standard returns as prediction market
The Industry Standard was one of the go-to news sources during the late 1990s dot-com boom. Like so many of the companies on which it reported, it went bankrupt in 2001. However, the computer industry trade publisher International Data Group brought it back to life today.
In a novel twist, The Industry Standard is now combined online newspaper and a prediction market. With a free account, readers can place (fake currency) side bets on various predictions about industry events. For example, markets open today include whether Yahoo! will accept Microsoft's bid by the end of the week, and whether Google, Yahoo! or Microsoft will buy Tivo by the end of the summer.
Prediction markets are a type of incentive-centered design that have become widespread and hot in the past few years. The first significant example I recall is the 1988 Idea Futures market by Robin Hanson, though academic articles by Hofstee (1984) and Leamer (1986) came a bit earlier.
There are quite a few well-known and active prediction markets now, such as Hollywood Stock Exchange, TradeSports, and News Futures. However, the new Industry Standard is the first time I've seen a significant market that is so closely linked to an online news source (though others sometimes provide a limited news feed). It seems like a natural idea: an industry-focused news site (if successful) is bringing in knowledgeable people with an interest in the likelihood of industry events.
Why is a prediction market an incentive-centered design? It is providing incentives to induce knowledgeable people to make the effort to reveal their knowledge and beliefs, and to do so honestly (so they address problems of both hidden action and hidden characteristics). Traditional stock markets provide this information revelation and aggregation role for the futures of publicly-traded companies; prediction markets play the same role for other outcomes.
Most of them, due to gambling and securities laws in the US, run based on funny money (valueless currency). Thus, the substance of the incentives is not immediately clear, and it is a topic for future research to determine how well these markets do induce effort and truth revelation. (The Iowa Electronic Markets, which has approval to trade in small amounts of money, mostly on political outcomes, has performed extremely well -- almost always better than professional polling organizations such as Gallup -- for many years.) It is going to be interesting and instructive to analyze participant responses to non-pecuniary incentives.
Former Michigan Ph.D. student Dave Pennock (now with Yahoo! Research) publishes an excellent blog about predicion markets: Oddhead.
(Image courtesy of "Financial Aid Podcast" on Flickr.
February 12, 2007
Pay as much as you want?
I stumbled on a couple of online businesses that are trying a variant on shareware pricing for content and services: "pay as much as you want".
The first is Magnatune, which sells music from selected independent artists. You can stream for free (similar to various Internet "radio" stations). If you want to download a "CD" of music from an artist, Magnatune suggests a price (typically about $8), but you can pay as little as $5 or as much as $18 (they don't seem to allow you to pay more). In a USA Today story, the CEO claims that the average price paid is $8.93, not the minimum $5 allowed.
The second is LibraryThing. If you don't know it, LibraryThing is a favorite in some SI circles: it's an online book social network / book cataloguing service. You enter books you own (with the ability to keyword search a dozen or more online catalogues, like Amazon's, and the University of Michigan Library's, to get all of the bibliographic information), tag them, share or not with others, browse through others' collections via tags, etc. LibraryThing announced on Saturday that it was intrigued by Magnatune's idea, LibraryThing charges $10 for one year, or $25 lifetime, but now "suggests" those amounts but lets you choose from a range ($19 to $55 for lifetime accounts).
Shareware is somewhat different: you get to use the shareware with or without restrictions (e.g., some functions are crippled) without paying anything, then if you want to pay (usually for an unrestricted version), the price is usually fixed. Freeware is a bit closer: lots of freeware "suggests" a donation. However, with Magnatune and LibraryThing you have to pay something to get the goods or services, but the amount is (within bounds), up to the buyer.
An interesting experiment in altruism / guilty consciences (or perhaps peer pressure or peer regard? Magnatune and LibraryThing know who you are!).
October 11, 2006
Market for Diggs
Something valuable happening on the Net? Then a market will emerge for it. The Blog Herald reports that there is now a service that sells "Diggs" (gets users to "digg" stories posted on digg.com so that they get ranked higher),
Publishers get to pay $20 and an additional $1 per dig, and digg users can get paid $0.50 for every 5 stories they digg.