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Economics of File-Sharing
Umair writes "The Red Herring's got an article by me about the economics of file-sharing, which argues that the music industry should provide insurance...against itself. This is because the contract listeners sign with labels is risky - it lets labels shirk on their end of the bargain. That's why file-sharing isn't just 'theft', it's risk-sharing.
The original, longer, version of the paper is here, which argues that this a situation economists call double moral hazard."
"moral" here is being used in the sense it is used in "moral certainty". The contrast in both cases isn't moral as opposed to immoral, but moral/practical as opposed to theoretical. A moral certainty is a practical certainty, a certainty great enough for to determine one's action, but not enough for a mathematical demonstration. A moral hazard is a practical danger, that is, one's action puts one in danger.
It's just how academics talk.
Anything worth doing is worth doing badly -- G.K. Chesterton
Why can't I moderate something "Wrong" or at least "Grossly Misinformed"?
Hi,
I'm the author. Thanks for discussing my piece. Here are some points to consider.
1) Moral hazard does not mean the record industry has 'morals'. It's a technical term - like grep, or chmod. It means that one party in a contract can take hidden action - like your babysitter - because you can't effectively monitor or influence them.
2) I'm arguing that the record industry should provide free music - not the other way around. Insurance is just another form of free music - whether you get reimbursed in money that you can spend on free music, or free MP3's, or free music vouchers.
3) An efficient market is not a monopoly. An efficient market for music is what all of us really want: a place where we can pay as much for music as the value we derive from it. The problem we're all facing is that the market for music is inefficient - that the music industry can price-fix, gouge, shirk on it's contract, and earn more profits by exploiting such tactics.
4) I'm not 'trying to give control to the RIAA'. In fact, it's the other way around. Read what DVD Jon has to say about buying into DRM - iTunes is nice, but by buying into it, you're also buying into DRM. I'm trying to argue that DRM sucks - and that entirely new business models are the only thing that will work - and iTunes is just the same old model wrapped in a nice interface. I'm trying to prove why the RIAA wants the game to stay the same - so it can keep selling the same old risky contract to all of us, in exchange for greater profits.
4.1) Not all MBA's are beancounters. Get over it.
Umair