Cultural Exceptionalism

I’ve been discussing iPod compatibility over at Jurisdynamics with Josh Wright, who offers a good defense both of Apple’s business practices, and governmental nonintervention, in economic terms. Though I’ve tried to translate some social concerns into economic terms in recent articles, I think I’m beginning to reach the limits of this effort. There simply seem to be too many “irreducibly social goods” that are not amenable to being discussed as costs or benefits to individual persons. Instead, these conditions (such as a diversity of content) rightly (or wrongly) shape how–or whether we are able to–judge things to be harms or benefits.

Consider, for instance, this article on a crisis in art history publishing. Fewer and fewer monographs are being published, and apparently copyright law bears much of the blame:

Ms. Ballon and Ms. Westermann have concluded that if art-history publishing is to thrive, gatekeepers of the visual must loosen their death grip on images. “We’re quite clear now that the biggest obstacle is the copyright obstacle,” says Ms. Ballon. “Until you clear that obstacle away, you can’t deal with the other issues.”

What’s interesting to note here is the indifference of conventional economic models to different licensing policies that end up generating the same amount of revenues. If, say, permissions for books are roughly $100,000 per book, and 10 books per year are published, or they are $1,000 per book, and 1,000 books per year are published, that looks about the same economically. But it makes all the difference in the world to art history graduate students, who face almost impossible odds of getting published in the first world, and a much better chance of getting their ideas out in the second.

Pace Mark Fowler, TV is more than a toaster with pictures. Why do many think that economic models developed before the internet (for the analysis of product markets) can be applied without remainder to digital innovation (for the analysis of cultural markets)?

9 thoughts on “Cultural Exceptionalism

  1. Frank, with all due respect, I’m not sure what conventional economic models you are referring to. I know of none that are “indifferent” to the different market outcomes that you describe. Economists might want to know what economic forces led to those different outcomes? What are the cost conditions? Is the market competitive? Are there economies of scale or scope in the production of these books? What about the demand for variety? What about the demand for art history books? You seem to be less interested in the economic forces at work in creating the market outcome than in the analytics of the division of surplus. This is fine. But ignores some pretty important economic questions. The statement about the indifference of conventional economic models to market structures and outcomes strikes me as plainly false.

    As for this:

    “Why do many think that economic models developed before the internet (for the analysis of product markets) can be applied without remainder to digital innovation (for the analysis of cultural markets)?”

    Surely, the internet changes things. It reduces a number of costs (e.g. transactions and distribution costs). But I suppose the answer (in the form of a question, just for fun) that comes to mind to your question is “why do many think that the internet has changed the law of demand,” or the law of supply, etc.? Economic models and tools are far more than flexible enough to adjust to various changes in costs, demand side economies, etc.. At the end of the day, the demand curve for iPod’s, just like the demand curve for say, widgets, slopes downward.

    Don’t get me wrong. I suspect that economic models are insufficient to make predictions about some of the cultural values that I sense you are getting at here. But let’s be precise. The shortcomings do not derive from obsolescence or indifference to market structure.

  2. I enjoyed your discussion with Josh. He raises some good arguments, especially about the role of antitrust in dealing with the concerns you raise. I am currently working on a project with Spencer Waller that makes the case for an essential facilities doctrine that incorporates infrastructure theory and recognizes the narrow set of cases where antitrust might respond to social benefits not captured in willingness to pay metrics for consumer welfare. Perhaps more on this in future posts…

    But your post also struck another chord. How does one account for the social opportunity costs (or missed benefits) of a path not taken? Path dependency rears its head in many areas, including cultural and scientific progress, and for years, I have had this idea in the back of my head that the impossibility of observing, much less measuring the value of, research paths not taken presents a significant obstacle for economic analysis of progress-dependent intellectual systems (like science and culture). We tend to focus either on measurable outputs and the value to consumers expressed by their willingness to pay or on measurable inputs like the amount of money invested into R&D. But this leads to a sort of tunnel vision that fails to look far from the path taken. Looking up and out from the path is difficult and perhaps takes us outside of an area that economics can deal with, but I am not so sure. (I hope this ramble makes sense.)

  3. Brett, I will look forward to reading your work on this issue. Antitrust law tends to be a blunt instrument. I do not think that economics is unable to contribute to a discussion that boils down to, as you point out, opportunity costs. I fear that an attempt to inject the concept (as I understand it) into the essential facilities doctrine will do more harm than good by deterring pro-competitive conduct. It will be interesting to see what you come up with!

    Frank, I’m having trouble with the following claim:

    “What’s interesting to note here is the indifference of conventional economic models to different licensing policies that end up generating the same amount of revenues. If, say, permissions for books are roughly $100,000 per book, and 10 books per year are published, or they are $1,000 per book, and 1,000 books per year are published, that looks about the same economically. But it makes all the difference in the world to art history graduate students, who face almost impossible odds of getting published in the first world, and a much better chance of getting their ideas out in the second.”

    Now, I don’t feel comfortable speaking for “economists” or “all of economics” as a general rule. But I feel fairly confident in saying that your statement that economic models would be “indifferent” to these different market structures and outcomes is flat out wrong. Similarly to your response to my comment at Jurisdynamics, the picture you paint of economics (there, the Chicago School) does not correspond to the real world economic literature.

    I don’t know what economic models you are talking about. But I suggest that most I.O. economists would ask the following question: what economic forces lead to these different market structures? Demand for certain types of books? Are the economies of scale? Scope? What does the demand for art history books look like? Of course, shame on me for returning to the willingness to pay metric, but I think it is quite useful. It may not capture everything you are looking for, but it is not because economists are indifferent to the two different market structures in your hypothetical. Consumer welfare does not measure everything, but it measures a lot of important information about what it is that consumers value. Perhaps consumers would be willing to accept higher prices and lower quality for an increase in some unnamed social value. But I dont know because I dont know what the unnamed social value is or how to assess these trade-offs (and we are talking about trade-offs, right?).

    But that is a tangential, though important, point. The central point is that economists and economic models are simply not indifferent as you describe them. I hope you agree that the question economists would ask, i.e. “what forces lead to this sort of structure,” are important ones.

    Lastly, I would like to respond to your closing question with one of my own and a few thoughts:

    “Why do many think that economic models developed before the internet (for the analysis of product markets) can be applied without remainder to digital innovation (for the analysis of cultural markets)?”

    Did the internet render obsolete the law of demand? Or the law of supply? Does an increase in demand now reduce quantity? Surely, the internet changes how we think about markets. By that, I mean, transactions costs may decrease, distribution costs decrease, network effects may be more important, etc. I’m frankly at a loss with respect to what makes you think that economic tools are rendered useless to deal with these types of changes in costs and demand conditions? The economics literature that I have seen is a good deal more robust and flexible than you describe it.

  4. I’m not sure the “crisis” in art history publishing is due to copyright law — judging from the article, it’s due to the high cost of printing color illustrations at a time of cost-cutting by publishers, and an oversupply of narrowly focused art historians compared to reader demand. One area where costs could perhaps be cut is permissions (interesting question what the copyright status of images of public domain works is, given that photographs are generally copyrightable), but the issue there, it seems to me, is not what a rightsholder should do when the aggregate amounts are in equipoise, but whether the price determined by supply and demand is nevertheless suboptimal from a societal point of view. The answer doesn’t appear obvious, since I’m not sure you can simply assume more is better; at some point people run out of time to read books, hard as that may be to hear for art historians. You might think that images of art don’t deserve to make any money at all, so their contribution to the costs of such books is unjustified, but that’s not obvious either; there’s all sorts of costs associated with maintaining artwork, or making images, or running a museum that it may help defray. And if permissions are just one factor among many, then I’m not sure it makes sense to focus on their cost as opposed to, say, the cost of colored inks. Perhaps there ought to be price controls on colored inks for the good of art history.

  5. Sorry for the double post, I was wondering what took the first one so long to get up and so wrote another one trying to express the same points! Feel free to erase the first one if you like.

  6. Josh, I am happy to send you an early draft and look forward to getting your reactions. Also, I agree with you that economics includes a very flexible set of useful tools. I think an interesting (perhaps emerging) mode of analysis is one that aim to explore the forces and structures that lead to the creation of social value not well reflected in consumers’ willingness to pay. The Internet may play an important role as an enabling platform/structure for activities that generate unappreciated spillovers. I agree with you that economics provides some powerful and flexible tools for exploring this dynamic.

    Of course, there isn’t anything wrong with using the willingness to pay metric, especially in antitrust analysis, as a measure of welfare. But I think what Frank is getting at here and elsewhere is that there are cultural/social goods that we systematically undervalue when asked to pay for them. I get into this quite a bit in my work on infrastructure and spillovers.

Comments are closed.