Digital Goods and the New Economy

i-Studio 5 seminars - series two, seminar 3, 11 March 2003

Danny Quah, Professor of Economics, LSE

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See also Digital goods and the New Economy on the Department of Economics web pages.

Digital goods are bitstrings, sequences of 0s and 1s, that have economic value. They are distinguished from other goods by five characteristics: digital goods are nonrival, infinitely expansible, discrete, aspatial, and recombinant. The new economy is one where the economics of digital goods importantly influence aggregate economic performance.

This article considers such influences not by hypothesising ad hoc inefficiencies that the new economy can purport to resolve, but instead by beginning from an Arrow-Debreu perspective and asking how digital goods affect outcomes. (This is not only analytically better disciplined, but since friction-free, transparent, well-functioning markets are where the new economy is supposed to be headed anyway, there is where the more enduring economic questions arise.)

This approach sheds light on why property rights on digital goods differ from property rights in general, guaranteeing neither appropriate incentives nor social efficiency; provides further insight into why open source software is a successful model of innovation and development in digital goods industries; and helps explain how geographical clustering matters.

This seminar is part of the ESRC funded ICTs in the Contemporary World: work management and culture series and is open to the public. UK PhD students are particularly encouraged to participate and their travels costs are subsidised. Email e.s.keys@lse.ac.uk for more information about support for doctoral students.

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