One interesting note is that the concepts and predictions in this paper are not as precise as those that I recall reading in papers when I was in graduate school. Perhaps this means nothing more than that I am guilty of practicing bad economics. However, I would prefer to believe that the problem lies in the fact that conventional economics is one of the professions that is challenged by these new phenomena. Here are what I think are some of the challenges:
Capital is not a central actor in the drama. Capital really plays a pivotal role in economics as I learned it. We used production functions that employed capital and labor, we showed how income was distributed between capital and labor, we dealt extensively with the problem of capital allocation, etc. On the Internet, physical capital is not a major part of the story.
The way I like to put this is that in building the interstate highway system the challenge was constructing the physical roads and bridges, not in coming up with the rules of the road. With the Information Superhighway, one could argue that the situation is reversed, and indeed that this reversal is one of the major problems with the highway metaphor itself.
The traditional focus on capital would lead economists to focus on efficient use of hardware. However, one could argue that of all the issues on the Internet, pricing the use of routers and phone lines is hardly the most interesting, particularly when compared to the issues involved in pricing the content of information services.
Many of the issues involve information and marketing costs. In economics, we used to accomplish a great deal by assuming no marketing cost and perfect information. However, when we discuss a communications medium, we are digging underneath this assumption and trying to understand something different. It's like going below the level of atomic chemistry to study sub-atomic particle physics. Suddenly we face a lot of difficult, complex issues that previously we had conveniently ignored.
One aspect of this challenge is that terms do not seem all that well-defined, much less measurable. Terms like interactivity, customization, or attention seem less precise than terms like "labor," "capital," and "utility," although perhaps this reflects little more than the fact that economists have grown accustomed to working around the ambiguity of the latter concepts.
If economists can study the economics of computer networks with the same precision of language and theory that we use in our models of capital and labor, that would be ideal. However if economists continue to insist on mathematical precision, but precise models cannot yet be applied to the interesting issues raised by the World Wide Web, economics may be a profession that gets left behind by the computer/communications revolution.
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