Information Costs

The term information is generally assumed to mean a message. It usually takes an audible or visible form and involves a sender and receiver. Information is meant to change the way the receiver perceives something, to have an impact on judgment and behavior. The term cost has traditionally been viewed as the value of inputs that have been used up to produce something. Since the inputs have been used up, they are not available for use anymore. Putting the terms information and cost together adds an interesting twist because the inputs that comprise a message may not be used up and may well be available for other uses. The issue becomes how much someone is willing to pay for information, in other words, what the value of information is. From the catchphrase “Information is power,” we can imply that information is highly valued.

The cost, or value, of information is difficult to determine because information is intangible, immaterial, highly fungible, and nonexclusive. Information can be replicated at little or no cost. Its use is infinite because it doesn't wear out or deteriorate. Information's value may increase as it is exchanged or interchanged with other information. The production of information goods involves high fixed costs and low marginal costs, as well as high sunk costs involved in creating information. Fixed costs are related to assets or expenses whose total costs do not change in proportion to the amount of information that is produced, such as rent and utility bills. Marginal costs change as the quantity produced changes, and in the case of information this would include the cost of the media on which the information is distributed, for example, a digital video disk. Sunk costs are those that have already been incurred and that cannot be recovered to any significant degree, for example, the costs of obtaining the information. Since information is relatively inexpensive to replicate, it has perfectly increasing returns. Once the initial investment is made, information can be reused at no additional cost.

These properties cause several dichotomies. The first is that users want information to be free, while its producers may want it to be expensive. The rationale [Page 1130]that information should be free is based on the fact that information is cheap to distribute, copy, and recombine. This is juxtaposed with the concept that information may be expensive because of its immeasurable value to the recipient.

A second dichotomy is the value of information related to time and distance. Buyers of information may be willing to pay a premium to be among the first who possess it and act on it. Information generally costs more the closer the purchaser is to its collection. In addition, the quality of information may degrade over time and over distance, since much of its use is contextual, or as it becomes obsolete or untrue with time. However, it is also possible that the value of information increases over time because it is compounded.

A third dichotomy is information's scarceness and familiarity. Items typically become more valuable when they are scarce. People may be willing to pay for information that is not generally known. While the exclusive possession of certain information may make it more useful, some researchers have found that its intangible value increases as it becomes shared. It is recognized that the availability of information and the free flow of data are the cornerstones of a democratic society and market economy. Sharing information resources means that organizations can make their resources available for other projects and may enable quick responses in emergencies; for example, information sharing among several governments helped contain the SARS outbreak to a limited geographical area.

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