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November 21, 2010


Property Rights to Information in the Cloud – A Cloud based view on the Coase Theorem

by AlanSBPerkins

When I studied economics  in the early 1980’s, we learned of the Coase Theorem, which always fascinated me. The Coase Theorem, is attributed to Ronald Coase, who has since earned the Nobel Prize for Economics (1991).

It occurred to me recently that the Coase Theorem may have some fascinating implications for the property rights of information stored in the Cloud.

The Coase Theorem, as I  recall it, goes like this: Regardless of who owns resources initially, given clearly defined property rights and zero transaction costs, resources will always be allocated most efficiently at the end of the day.

This makes for some really interesting discussions about the Internet and property rights to information. The theorem is particularly relevant for discussion for two reasons. Firstly, in the internet world, transaction costs asymptotically approach zero, meaning that the costs of transferring or asserting ownership of information is infinitessimally small, and getting lower all the time. Secondly, property rights are subject to a whole range of debates around privacy, rights to share, rights to mail, sovereignty, rights to access. So if property rights can be defined, the best allocation of resources, according to the theorem, can be ascertained.

For the first time, we have a situation where the theorem can be tested on a massive scale due to the low transactions costs being so low as to be unimagined when the theorem was first postulated. Economists are famous for proposing academic models, but here we have one that can actually play out in real life, where the focus is on the property rtights not the transaction costs.

So what does this imply – more research will be required on this I am sure, but initially there are some interesting trends emerging. We are seeing some stupendous valuations placed on the holders of the information we have. Facebook stands out as a particularly interesting case study because of the ownership debates and the sheer scale of data being pushed through that platform. Google is interesting because it can figure out what we are interested in and match that to marketers.

What does this say about the valuation of our personal data? Will a greater understanding of the Coase Theorem as it applies to the Web 2.0 put a value on our personal data? our spending patterns? There are already small examples of people receiving money for their data, their opinions, their search history, their web trails. Also, there are plenty of examples where people are paid in the forum of free software in exchange for the right to deliver advertising.

One thing is certain – we should not be giving up our rights to our data without fully understanding how valuable it is. The Coase theorem suggests that there is more value to than would appear on the surface and a little care should be exercised in the way we manage this intangible property.

I will have to think further on this.

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2 Comments Post a comment
  1. tasstark
    Nov 25 2010

    Cheers Alan. Interesting concepts for contemplating Web 2.0 and intellectual property, especially in the mixed public-private sectors. Also a good bridge for discussion between an information management father and an economist daughter. I look forward to following up on this with you, as well as Clare. Thanks.

  2. Kevin Stark
    Dec 2 2010


    Contiuning on. I can understand the interest you have raised when applying Coase Theorem to information ‘ownership’ and transactions. I need to think this one through! We can already see the curfuffle over music and other artistic endeavours. When this is widened to any information shared in the manner that Web 2.0 technologies allow, the big questions around personal information privacy and usage will force some dramatic rethinking about cultural, business and political (capitalist or communist) beliefs and practices.

    I am accessing information on the theorem itself and arguments for and against, as well as considerations in economics and law. So far there I have not found much treatment of INFORMATION as the goods, rather than an attribute of the goods.


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