The Psychology Of Externalities: Only I Can Benefit

from the welcome-to-the-world-of-entitlement dept

To understand the economics of the digital era, at some point or another you need to dig pretty deep into the issue of externalities -- a topic on which there's been a lot of recent research. However, the traditional view of externalities is that these are economic "spillovers" that either benefit (positive externalities) or harm (negative externalities) third parties. The traditional view is that too many externalities can lead to too much or too little of a good being produced, because all of the costs and benefits are not properly accounted for by those making the production decisions. Some recent research begins to question that assumption. And this becomes more and more important in a digital era, where externalities are less "spillover" and can, in some cases, be a major result of the good. For example, the ability to make a perfect copy of a song for free may be seen as an externality.

Either way, though, Clay Shirky recently brought up a point that touches on the psychology associated with externalities. He was talking about the silliness of Mannie Garcia claiming copyright on Shepard Fairey's iconic poster, and noted that people seem to view externalities quite differently, depending on how they impact them. For example, nearly the entire benefit of the photo that is being fought over was added by Fairey. That is, the only reason that the photo has any significant value these days is because of Fairey's poster. It's an externality from the poster. And yet, rather than recognizing that it has received a free benefit, both the AP and Garcia want to demand money from Fairey for causing the externality.

But, at the same time, the AP of course has no trouble profiting off the externalities of others. The fact that people make news that allows the AP to report on it, is an externality. The fact that tons of people are willing to talk to reporters and give them quotes and educate them is an externality. The fact that the AP learns about some stories from other news sources or researchers its stories via Google or any internet technology is an externality. And it has no problem benefiting from every one of those externalities, and would be quite upset at the thought that someone would come back later and try to charge them for it.

And, yet, when it comes to the other direction, suddenly the AP says that no one else might benefit from externalities. Only it may benefit from externalities.

Of course, this is not just limited to the AP. It's a common psychological problem when it comes to externalities. Look at almost any dispute that's being caused by the modern internet and you can find someone who's upset about some externality not being "fair." We see it with the blame being put by the entertainment industry on "piracy." We see it with the blame being placed on aggregators and Craigslist by newspapers. We see it in trademark, copyright and patent disputes. And it's always psychological. Recent behavioral economics studies have shown that rationality gets tossed out the window the second someone thinks that someone else is benefiting too much. Even if you would benefit more yourself, seeing someone else apparently benefit more seems unfair.

This thinking is both pervasive and dangerous -- even if it's natural. It leads to a destruction of value (or, at the very least, a hindrance of it). It focuses on pulling others down, rather than looking at how we can all, individually, be better off. Both Mannie Garcia and the AP benefited greatly from Shepard Fairey's externalities. But because they feel he benefited too much, they want to sue him. And all that does is prevent them from benefiting from similar externalities in the future. The same is true in pretty much every industry that we talk about. It's as if people don't realize how much they benefit from externalities. They assume that benefiting themselves is "normal." But the second anyone else benefits, it's "theft" or a massive problem that needs intervention. And that's a problem.


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  1.  
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    dmntd, Jul 14th, 2009 @ 10:59am

    dude..

    word...I see quite a few pleading the fiiiitfth!

     

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    John Doe, Jul 14th, 2009 @ 11:11am

    This sums up the problem

    Recent behavioral economics studies have shown that rationality gets tossed out the window the second someone thinks that someone else is benefiting too much. Even if you would benefit more yourself, seeing someone else apparently benefit more seems unfair.

    This right here sums it up nicely. People, for whatever reason, can't stand to see other people benefit from their work. Never mind that benefit might even help themselves out, they still want it stopped.

     

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    LostSailor (profile), Jul 14th, 2009 @ 11:16am

    Missing the Forest...

    And, yet, when it comes to the other direction, suddenly the AP says that no one else might benefit from externalities. Only it may benefit from externalities.

    Hmmmm. That's quite a stretch and misstates the situation.

    And, yet, when it comes to the other direction, suddenly the AP says that no one else might benefit from externalities based on content it created and to which it owns the rights. Only it may benefit from externalities freely given by newsmakers, which it transforms by its reporting.

    There...that's better.

    Both Mannie Garcia and the AP benefited greatly from Shepard Fairey's externalities. But because they feel he benefited too much, they want to sue him.

    "Benefited greatly"? Again, a stretch. Fairely never identified the source of the photo or the photographer, so until much later, no one knew that it wasn't entirely Fairely's creation. How exactly have either AP or Garcia benefited "greatly"? They've gotten subsequent publicity, mostly negative in AP's case and it's hard to see how AP could benefit "greatly". Garcia might, on the other hand, get a benefit of publicity, but only after it was discovered that it was his photo that was the basis of the poster.

    Fairley may have a very valid fair use claim here. But for those "externalities" created by the poster to benefit the photographer, wouldn't it have to be known that he was the photographer? In my opinion, Fairely's fair use claim would be stronger if he'd identified and credited the photographer (if not AP).

    Once, again, Mike, you seem to be overstating the case to make your point. The "externalities" created by someone using my work in a new context only benefit me if my contribution is known.

     

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  4.  
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    ChurchHatesTucker (profile), Jul 14th, 2009 @ 11:27am

    Re: Missing the Forest...

    "The "externalities" created by someone using my work in a new context only benefit me if my contribution is known."

    Then make them known yourself and be done with it.

    I thought pretty highly of Garcia when he merely wanted a litho. I think he's a douchebag now. HE didn't transform that photo into an icon. That's probably why he's an otherwise-anonymous AP photog.

    (And yeah, Shepard can be a douche too. Irony is not in short supply these days.)

     

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  5.  
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    interval, Jul 14th, 2009 @ 11:45am

    Re: Re: Missing the Forest...

    @ChurchHatesTucker: "And yeah, Shepard can be a douche too."

    But not in this case.

     

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  6.  
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    Hulser (profile), Jul 14th, 2009 @ 11:50am

    Re: Missing the Forest...

    And, yet, when it comes to the other direction, suddenly the AP says that no one else might benefit from externalities based on content it created and to which it owns the rights. Only it may benefit from externalities freely given by newsmakers, which it transforms by its reporting.

    Your "corrections" involve two aspects, who owns the original content and the transformation of the original content. However, in terms of fair use, it doesn't matter who owns the original content. Specifically, you can have a legitimate fair use claim on either content that is "freely given" or copyrighted, as long as it's transformative.

    Also, while it does seem to be better from a moral perspective to credit the original source, from a legal standpoint, I don't believe that this is a requirement for a fair use claim.

     

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  7.  
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    Nick Dynice (profile), Jul 14th, 2009 @ 12:12pm

    Re: Missing the Forest...

    ... based on content it created and to which it owns the rights.

    Ah, so what you are saying is that copyright grants the benefits of positive externalities only to the copyright holder. So when I sing a song under copyright and it makes me happy, happier than the rights holder singing it, then I am violating copyright?

    "The exclusive right to benefit from positive externalities" is being interpreted to "promot[ing] the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."

    The problem is that there really is no secure way (government granted or otherwise) to keep others 100% from benefiting from externalities. It is a pipe dream.

     

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  8.  
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    LostSailor (profile), Jul 14th, 2009 @ 12:52pm

    Re: Re: Missing the Forest...

    This particular paragraph was separate from the Fairley fair use claim, focusing on AP's use of "externalities" of news creation and subsequent "externalities" of news reporting. The "newsmakers" (i.e., the activities and statements of those that are the focus of a news report) have no explicit copyright in what they do or say. As Mike notes, these are "facts" that are not subject to copyright. However, the written (or recorded) report is.

    But I believe Mike is talking about the benefits of "externalities" outside of the application of copyright to make the point that positive "externalities" flow both ways and to everyone's benefit. However, I don't think you can completely divorce those benefits from copyright except in the very abstract (at least not in the current climate).

    You are correct that there is no legal requirement to credit a source in a fair use claim. I just think it would make Fairley's case stronger.

     

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  9.  
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    LostSailor (profile), Jul 14th, 2009 @ 12:58pm

    Re: Re: Missing the Forest...

    Ah, so what you are saying is that copyright grants the benefits of positive externalities only to the copyright holder.

    Not at all. There are plenty of positive "externalities" that are not covered by copyright, including your enjoyment of singing a song and enjoying it.

    The problem is that there really is no secure way (government granted or otherwise) to keep others 100% from benefiting from externalities. It is a pipe dream.

    That's not the purpose of copyright and never has been. There are specific benefits that are protected, mostly involving controlling the use and exploitation of a protected property and most of those related to tangible expressions of the protected property. Copyright has never been and cannot be 100% protection or control.

     

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  10.  
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    nraddin (profile), Jul 14th, 2009 @ 1:18pm

    perception of poverty

    Poverty is the United States is a bit of a myth for anyone that is willing to look at what real poverty in the world is like. (The average welfare person in the US owns 2 color tvs, a Car and has AC in their home)

    However it's not about how much money you have that makes poverty, it's the amount of money other people have. If someone has more than you, you feel poor. If you have more than someone else you feel rich. It's just that simple.

    So when we are talking about someone benefiting from something you originally worked on, even if they changed it dramatically, is the kind of thing that makes you feel impoverished.

    It's Natural and it's not going to change. I am pretty sure that no matter what we do this will not change. While it would be nice if it would, fighting against human nature has very very rarely been successful.

     

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  11.  
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    Bob, Jul 14th, 2009 @ 1:26pm

    The purpoes of copyright

    "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;"

    When it becomes impossible to regulate the ignorance of external costs, society must shift towards a focus on external benefits to promote the progress of intellectual property.

    In other words, because it has become effectively impossible to protect intellectual property, we must adopt a policy which accepts or even promotes the exploitation and adaptation of previously exclusive material.

    Yea. Some economist/ game theorist is going to win a nobel prize explaining that with math.

     

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  12.  
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    Hulser (profile), Jul 14th, 2009 @ 1:46pm

    Re: Re: Re: Missing the Forest...

    But I believe Mike is talking about the benefits of "externalities" outside of the application of copyright to make the point that positive "externalities" flow both ways and to everyone's benefit. However, I don't think you can completely divorce those benefits from copyright except in the very abstract (at least not in the current climate).

    I don't think Mike is saying that you can, so I'm having a hard time seeing exactly why you're saying that he "misstates the situation". Mike is saying that the AP applies a double standard in that they can benefit from transforming content from others, but that once the AP transforms the content, all further transformations are prohibited. Your corrections appear to be stating that AP is not applying a double standard because the content becomes copyrighted when the AP does the transformation. But, under the current copyright system, whether the content is copyrighted is irrelevent. What is relevent is the amount of transformation.

    So...how exactly is Mike misstating the situation?

     

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  13.  
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    NullOp, Jul 14th, 2009 @ 1:54pm

    Externalities....

    Hmmm...my cup runneth over, but its still my cup, so to speak.

     

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  14.  
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    Hulser (profile), Jul 14th, 2009 @ 2:18pm

    Re: This sums up the problem

    People, for whatever reason, can't stand to see other people benefit from their work.

    From a sociobiological standpoint, I think the reason is simply that humans are hardwired to view property as a zero sum game. If, for millions of years, the only way that you could have a bone with some meat on it was for someone else not to have it, you're going to have a harder time wrapping your primal monkey brain around the idea that it's OK to be better off even when others are more better off. The contradiction is a result of how we evolved clashing with the modern concept of intangible property.

     

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  15.  
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    rixbad (profile), Jul 14th, 2009 @ 2:27pm

    Doesn't sum up anything

     

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  16.  
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    Bradley Stewart, Jul 14th, 2009 @ 3:58pm

    Where Does One Draw The Line?

    This is a very complicated field of law. Also its very labor intensive. It is also prone to endless appeals. As important a field as it is if I were a lawyer I would pick something else. Ladies and Gentlemen of the Jury are these the legs of a murderesses?

     

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  17.  
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    ChurchHatesTucker (profile), Jul 14th, 2009 @ 6:28pm

    Re: Re: Re: Missing the Forest...

    "But not in this case."

    True.

    OTOH, it's not over yet. ;)

     

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  18.  
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    ChurchHatesTucker (profile), Jul 14th, 2009 @ 6:33pm

    Re: Externalities....

    "Hmmm...my cup runneth over, but its still my cup, so to speak."

    Your Honor, this is clearly derivative of my two clients' work...

     

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  19.  
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    Joe, Jul 14th, 2009 @ 7:57pm

    Sometimes life isn't fair!

     

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  20.  
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    LostSailor (profile), Jul 15th, 2009 @ 7:58am

    Re: Re: Re: Re: Missing the Forest...

    Mike is saying that the AP applies a double standard in that they can benefit from transforming content from others, but that once the AP transforms the content, all further transformations are prohibited. Your corrections appear to be stating that AP is not applying a double standard because the content becomes copyrighted when the AP does the transformation.

    Yes, I am saying just that. There is no "double standard." News--noteworthy events and the actions and statements of people--are not copyrightable and can be used by anyone as news. AP is creating content that reports that news, content that is subject to copyright, which places limits on how others can use that content. Note that it doesn't completely forbid other uses, especially transformative uses. So you are correct in stating that the relevant question is the amount of transformation.

    Mike further states "And, yet, when it comes to the other direction, suddenly the AP says that no one else might benefit from externalities. Only it may benefit from externalities."

    I believe this to be untrue and a misstatement of the situation. There are plenty of beneficial "externalities" that people gain from AP content, not the least of which is widespread and timely access to news, which many consumers don't pay for, at least not directly.

    Are some "externalities" restricted? Yes. But nowhere near the extent Mike claims.

     

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  21.  
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    Anonymous Coward, Jul 15th, 2009 @ 11:15am

    Re: Re: Re: Re: Re: Missing the Forest...

    News--noteworthy events and the actions and statements of people--are not copyrightable and can be used by anyone as news. AP is creating content that reports that news, content that is subject to copyright, which places limits on how others can use that content.

    AP and others in the newspaper business are pushing for yet more laws to give them ownership over news itself, not just their expression of it. Of course their shills don't want people talking about that.

     

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  22.  
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    Fred McTaker (profile), Jul 15th, 2009 @ 6:44pm

    Environmental Externalities

    I usually hear the economic term externalities used in the negative, as with environmental impact, but the psychology is the same. Coal burners want all the profit from the electricity they sell, yet pay nothing for the impact their coal smoke and ash pools cause to our collective environment. Now we all pay for letting them get away with it, via pollution, fresh water prices, health problems, and global warming. I think this kind of case makes it obvious that externalities should always be calculated from the view of the public impact rather than the private impact. Screw you if you think you missed out on any profits. Screw you big time if you think you deserve to avoid taxes or public impact fees on your profits. I could care less if someone takes "your" product and makes it better, especially if that includes making it free, as in beer or speech. Everyone wants a monopoly and all the rents they can get, but nobody should be able to keep a monopoly nor any of the rents they extort.

     

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  23.  
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    Anonymous Coward, Jul 20th, 2009 @ 9:02pm

    "To understand the economics of the digital era, at some point or another you need to dig pretty deep into the issue of externalities -- a topic on which there's been a lot of recent research. However, the traditional view of externalities is that these are economic "spillovers" that either benefit (positive externalities) or harm (negative externalities) third parties. The traditional view is that too many externalities can lead to too much or too little of a good being produced, because all of the costs and benefits are not properly accounted for by those making the production decisions. Some recent research begins to question that assumption. And this becomes more and more important in a digital era, where externalities are less "spillover" and can, in some cases, be a major result of the good. For example, the ability to make a perfect copy of a song for free may be seen as an externality."

    It's zero-sum thinking. For a long time, zero-sum thinking worked well enough as an approximation, in much the way when one is planning a new town's street layout you can treat the Earth as flat without problems.

    On the other hand, now that no longer works, much like how when one is planning international airline flight paths one can no longer approximate the Earth as flat.

    You can think of the traditional view of externalities as the correction factor for the fact that the world isn't quite flat and the game isn't quite zero-sum. The externalities tended to be a small, linear fraction of the total amounts involved; a small deviation between reality and the zero-sum approximation to reality.

    But now we've reached the knee of the accelerating-progress curve, the point at which things go nonlinear. In particular, the externalities, the deviation between reality and a zero-sum approximation, are now the dominant terms, and approximating those linearly doesn't work.

    The first strong effects are being felt in the internet-related areas, because computing and the IT sector got hit first by serious acceleration. But those effects are going to spread quite soon. For example, maturing nanofabrication technologies will lead to exponential progress in the manufacture and sophistication of non-microchip physical goods, and there goes the patent system -- engine designs, jet aircraft, pharmaceuticals, and yes, microchips, all will become susceptible to Napsterization in turn. Furthermore, other kinds of externalities than "can be copied easily and cheaply" will emerge.

    The world is dividing between those who are willing and able to adapt by giving up on zero-sum approximations as models of reality and as the basis for economic models and business models, and those who are not. And the latter will be outcompeted by the former.

     

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