Economics of Geographic Information

In general, it is difficult to understand the economic value of information. In classical economic theory, only land, labor, and physical goods have values. In this case, the participants in the market have complete knowledge, and knowledge is a free good with no value. This does not correspond to our daily experience, and economic theory has been extended. In the “new institutional economics,” information is valuable, as it contributes to improvements in economic processes. Information is a special economic good, as it can be given away and kept at the same time (possibly changing its value). Information products are costly to create for a first time but can be multiplied at very low cost without losing content. Nevertheless, understanding the economic importance of geographic information (GI) and organizing profitable businesses around GI seems [Page 121]to be difficult; only a few successful examples of applications and businesses survive despite unanimous agreement that GI is very important.

It is generally accepted that 80% of all decisions are influenced by spatial information and influence our spatial environment. This points to the enormous role that spatial information plays in our everyday lives and also in decisions by companies or governments. Very different estimates of the total value of GI exist, but the figures depend more on what is counted than what is there: Free GI obtained from a street sign is not included, but car navigation systems are counted; GI created and held within a company is not included, while the same GI obtained as a service from a third party is included.

National military organizations were among the first enterprises that systematically collected geographic knowledge to be used in their (warfare) operations. As a consequence, most national government organizations that now build and maintain national GI infrastructures (i.e., the national mapping agencies) have a military background and often are still included in ministries of defense. In the 1990s, however, with globalization and the avalanche of new information technologies, the need for and use of GI has rapidly expanded to many other enterprises. Business processes have changed in such a way that GI that was previously available implicitly—the decision makers knew their spatial environment—is now required in an explicit form to be used through analytical processes in globalized business planning.

To assess the value of GI, one must analyze a specific decision situation, which may be mundane (On my way to a friend's home: Should I turn left here?) or of utmost importance (Decision in a national government: where to construct the new nuclear plant?), and investigate what improvement in the decision is achieved when a specific piece of information is available. Can we achieve the same result with less resource utilization? Does the information reduce the risk associated with the decision? How much faster can we make the decision? The value of information is in its use for decision making and decisions typically need combinations of different types of information, spatial and nonspatial.

The market for GI can be divided into two kinds, each with distinct structures: the mass market and specialized markets. The mass market mostly uses only a few common geographic data sets that are used by nearly everybody. Most important and widely used are street addresses and the road networks, political boundaries, postcode zones, digital elevation models, and socioeconomic (statistical) data. Recently, a number of services on the Web, such as Google Maps and Local Live, have also popularized image data. The value of GI by itself is often small, and it becomes useful and valuable only when combined with other data; this is a market with many customers and many uses, and the individual value of the use of GI is very low (a few cents or less per use). In this market, collecting fees is impossible, and GI is often paid for by advertisement. The cost for maintenance of these data is a few Euros per person and year.

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