2 - Equilibrium in an economy with information goods

Summary

Introduction

Arrow's chapter in this volume, Makarov (1991), and Chichilnisky (1996) have considered economies in which information plays an important role. Makarov (1991) suggested an approach for modeling an economy with intellectual goods (see also Danilov et al. [1994a]). Arrow discusses an “information theory of value.” Here we study the problem from the point view of value in general equilibrium theory as in Chichilnisky (1996).

Like ordinary economic commodities information goods are costly and valuable, but there is a crucial difference. Ordinary goods are counted according to the usual rules of arithmetics. Information goods are different. It makes no difference whether one unit or many units are to be produced or consumed; the same amount of information is presented. Furthermore, an information good can be used by others (if production is costless) even though the original owner has not lost it. Once created, an information good is not scarce in the economic sense: It can be used over and over again. This means that information goods are added according to an “idempotent sum” operation, that is, the result of summing an object with itself is itself. (One can find a similarity to what Arrow's chapter says about the algebra of information.) If we assume that this operation is commutative and associative, the set of information goods with such a sum operation is a semilattice (Gratzer [1978]).