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. icon
    nraddin (profile), 14 Jul 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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