March 31, 2006
In a post based on his new book Tyler Cowen recently questioned whether revealed preferences, measured by monetary exchange, are an adequate framework for economic analysis. I’ve been planning to post further on non-monetary transactions and his quote has pushed me over the threshold.
In “The cost of money” I explored why so many network-mediated interactions are non-monetary, but I only looked at the negative side – the irreducible transaction costs of money. Now I want to explore the positive side – what do people get for contributing to open content production, such as testing or writing open source software, writing for Wikipedia, proofreading for the Gutenberg project, blogging, posting pictures on Flickr, etc.? With very rare exceptions contributors don’t get money, but rather are willing to spend money – they often have to pay at least a little for internet service and hosting, and open content production sites seem to get quite a few cash donations when they ask.
Obviously people get many things in return for their investment in content production, including such indirect monetary rewards as better jobs. However I argue that a dominant theme across essentially all kinds of open content production is esteem – the favorable opinion of one’s chosen reference group. We can see the importance of esteem in efforts by contributors to make sure they are properly credited, debates over priority, flame wars over design judgments, etc. Of course making contributions as investments in esteem is not new; we see very similar patterns in scientific and artistic communities going back at least hundreds of years.
Esteem is clearly sought in most cases for its intrinsic value to contributors, not for its instrumental value. For most of us the favorable opinion of our reference group is not a means to other ends, such as higher salaries, it is an end in itself. This is consonant with the recent research (e.g. 1, 2) indicating that happiness, in developed societies, is a function of social relationships and relative economic status, not material well being per se. I think that once most material needs are satisfied, wealth produces happiness largely by helping us to garner esteem.
If we take esteem seriously as an important source of intrinsic value, then we have gone a long way toward explaining how open content production can replace financially mediated content production. For many people, contribution to open content is a very efficient investment with returns in esteem– far more efficient than incurring the double transaction cost of converting work into money, and then money into investments in goods and services that may return esteem.
We are all familiar with the way digital networks are changing the cost of collaboration by reducing manufacturing and distribution costs for information goods asymptotically toward zero. Equally important, given this analysis, is the fact that networks dramatically increase the chance that someone can find a reference group that will esteem the contributions they can make. This is the dual of Benkler’s key point in “Coase’s Penguin” that networks allow for much better recruitment of contributors to projects based on the fit between them. Benkler emphasizes the ability of individuals to make contributions that are valuable to the project; I emphasize the esteem the reference group provides to the individual; but these are two sides of the same phenomenon.
However the replacement of money by esteem is not just a matter of efficiency. We can see this by observing that in many cases, we cannot use money to acquire major sources or indicators of esteem, such as Olympic gold medals, Nobel prizes, or even the laughter of friends. If any of these were known to be for sale they would lose all their value! I have some ideas about why this is true that I will address in a subsequent post.