Information (like and not like time) is still money

The Wall Street Journal has a story today (“New Web-Watching Tools Pique Interest of Investors”) about how some technology-savvy investors are using news aggregation software (such as RSS) to glean the latest tidbit that will given them an advantage in the stock market.
This reminds me of the old stories of Rothschild and news of the battle of Waterloo. Information has always been power — and money. But we need to remember that there are two ways that information equal money. The first is the use of information that no one else has — be it insider information or first-recipient information. That type of information is only powerful in zero-sum situations (I use the information to outsmart you in a transaction). This is what economists call information-asymmetry (and won Joseph Stiglitz a Noble Prize). And once that information is used, its value goes to zero (when everyone knew the outcome of Waterloo, Rothschild’s information was worthless). In this way, in information is like time; a scarce commodity that is easily used up.
But information is also not like time. It is something that continues to build on itself. As New Growth Theory teaches us, information, knowledge, technological advance and innovation are the result of economic production. However, knowledge and information differ from traditional factors of production in important ways. Information and knowledge are non-rival, meaning that more than one person can use the economic good at the same time (e.g. a software program). Therefore, they are only excludable by law rather than through physical possession (excludability refers to the ability of someone to prevent others from using the economic good) – otherwise known as intellectual property rights. As a result, the spillovers from knowledge make the accumulation of knowledge self-perpetuating. Not only is the growth of knowledge self-perpetuating, there are increasing rather than diminishing returns. In the neoclassical model, the growth effect of simply adding more capital and labor diminishes over time; it takes more and more input to maintain the same growth. Knowledge is different; it continues to grow itself.
This is the type of information that has lasting value. Unlike hot stock tips, it is the foundation of the I-Cube Economy.

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