Monday, September 03, 2007

Economics of data-sharing

Last month I posted some speculations that the limited use of public transit was as much a problem of understanding how to use it as a problem of availability and cost. I got a comment from a legitimate expect on this, Joe Hughes, who pointed out that decent data exchange formats exist but "transit agencies haven't traditionally seen the value of sharing their information with outside developers". (Joe also shared a pointer to his blog, which includes an interesting post on geocoding ideas, btw).

The economics of data exchange is something I've thought about in the past. I think that efficient schemes for sharing information are best thought of as public goods - ie goods that have positive externality - ie things that benefit everyone, but don't benefit any one party enough for them to actually want to pay for it. One classic example of a public good is a road system (which benefits both the merchants and consumers that are connected). Like a road, data sharing schemes in general connect data consumers and potential data providers.

Unlike a road, however, the connected parties don't usually exist until some data-sharing scheme is possible - so you often see "chicken and egg" problems: there's no point establishing a standard until somebody's ready to use the published data, but nobody's going to be ready until the data is there. You can jump start the system from either end (or from a third neutral point, by scraping data sites and standardizing the format - let me tell me about this company I used to work for...) but that is always risky, since it's hard to guess the size of a market that doesn't exist.


Michael Berman said...

Another similar example is electronic transcripts in education - it's difficult and expensive and there are no standards, so (nearly) everyone uses paper transcripts. The benefits from a uniform system of electronic transcripts would likely repay the costs of implementation but in a distributed system the costs of coordination are too high to make it happen, and the first movers bear a disproportionate cost.

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