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Next: Efficiency vs Privacy Up: Information Policy Previous: Economics of information

Operational information policy

The right to learn provides the framework for creating operational information policy governing decisions based on current knowledge. Operational information policy  should promote market efficiency, government effectiveness and the ability of principals to evaluate agents. With regard to this third property of operational information policy, we might cite the examples of stockholders who must evaluate management and citizens who must evaluate government officials. Most of the types of decisions under consideration will in informational society be addressed by analysis using a decision support system. As the social sciences, the business disciplines, and artificial intelligence advance, they will create an increasing number of models for analysis of alternatives. In this context the issue becomes the extent to which information rights should be created to provide input for models to evaluate performance.

Consider first the problem of information policy as regards the promotion of economic efficiency. Advancing information technology will greatly increase the information available to decision makers. To appreciate this point, we need only consider the consumer who evaluates alternative automobiles. As the business records of repair shops are computerized, and as more sensors are built into automobiles to determine the current operating condition, the buyer could obtain a complete repair history and current sensor status report. The buyer of a new automobile could potentially obtain all test reports in the automobile manufacturer's research and development efforts at very low cost. Whatever information is made available to the buyer as an information right, consumer services would use to predict performance through the creation of models.

Consider also the problem of an employer evaluating prospective employees. As records in firms become more detailed, the creation of analytical measures of performance will become commonplace. The more data of an applicant's past performance made available to prospective employers the better models can predict future performance. As information processing capacity expands for businesses and individuals, market decisions of all kinds will change. For comparing large numbers of alternatives in the marketplace, decision makers will use analytic models or tools at least for an initial screening to obtain a small number of candidates which can then be subjected to a more comprehensive, intuitive evaluation. For market efficiency, decision makers should have information rights to the input of models that have demonstrated significant prediction performance.

Given the appropriate information rights, how are the various parties going to acquire the requisite information? As the informational aspects of markets move to the social nervous system, the analysis of alternatives will take place through databases. Given information rights to data for the purpose of prediction, these markets will be much more efficient than current markets are. To compete with one another, producers will need to have their products listed in the databases of consumer services, and workers will need to have their resume information listed in job search databases. Once the guidelines for appropriate data are established, parties will voluntarily release this data, and only in very exceptional cases would the courts be used to obtain data.

As markets are currently organized consumers do not have the resources to take a producer to court to obtain the test results of a new product, nor are the benefits of this action to the individual consumer worth the cost to the individual consumer. If, as predicted, consumer services become a major factor in informational society, they will have both the resources and the incentive to obtain all information granted under information rights. In labor markets, on the other hand, the penalty of not being considered for employment is so severe that it is very unlikely that the courts would have to be used to obtain information.

Overall, then, with properly designed incentives and penalties imposed for failing to comply with information policy, all involved parties would have an interest in voluntarily complying with the information rights. Accordingly, the information requirement for a valid contract would go beyond an absence of misrepresentation to include compliance with information rights. In the course of time precedent and statutes would have to establish liabilities for failure to inform.

The effectiveness  of information policy depends on the technology for evaluating alternatives. For example, the effectiveness of an information right to know the true simple interest rate on a loan to promote comparison shopping depends on the cost of obtaining and ranking alternative true interest rates. Such a policy will be much more effective when the customer can use a computer to find and rank the alternatives than when the customer has to obtain the information by making personal trips to each bank. Similarly, the information right to unit prices in grocery stores to promote comparison shopping is of dubious value in that consumers must still expend considerable mental resources to make the comparisons. Once grocery shopping shifts to the social nervous system, price comparisons become much easier to make. Providing consumers with the research and development reports of new products, today, would be costly and might not promote a better comparison of the alternatives as most consumers could not understand the reports.

As the ability to analyze alternatives by computer increases, government can reduce regulation by expanding the flow of information. As consumer services grow in informational society their ability to digest information and present it to their clients greatly changes the effectiveness of information policy. For example, a low cost policy to reduce defects in products would be to require producers to disclose their safety and other test results. Consumer services would interpret them for their clients, and manufacturers would be much more reluctant to release new products until known defects had been corrected. The demand for a direct government role in product safety would accordingly be reduced.

As the information aspects of markets move into the social nervous system the form of information requirements should be modified to improve effectiveness. Consider the labeling requirement that manufacturers list the ingredients of food on the containers. When the purchase of food shifts to the social nervous system, this type of information should become a datafile in the social nervous system. Consumers with particular diet requirements could then incorporate the diet requirements in their market basket search procedures. This approach would be less costly to the manufacturers and would be of more use to the consumer. Since the manufacturer would only need to list the components of his product once instead of posting them on every package, the listing could provide even more detailed information such as a complete chemical breakdown in addition to the food components.

Likewise the current trend to provide information of hazards in the workplace should provide a complete datafile which can be analyzed by the worker's union or professional society. An information policy to make externalities public, will cause private parties to incorporate the consequences of externalities into decision making. Creators of negative externalities would have incentives to reduce their effects. Because aircraft disasters and nuclear power failures can cause such massive damage, such a policy would not totally eliminate the need for government regulation.

Information rights can also make markets more competitive by creating an open-interface policy in hardware and software. As manufacturing proceeds towards integrated automatic systems, the ability to compete in the market requires knowledge of the interfaces linking the various equipment together. A policy of open-interface creates market niches for smaller companies to develop specializations. With an open-interface a small company can be assured that a specialized product will work with other equipment. An example of this type of market are the numerous small companies making specialized boards for personal computers. Similarly, the interfaces in software products should be open. This creates market niches for add-ons in both manufacturing and the services.

In a competitive market, the profit signal adjusts supply and demand. Suppliers, in adjusting supply, will move from markets with lower-than-average profits to markets with higher-than-average profits. Information policy could therefore be used to promote a more rapid adjustment of supply and demand by making this information-that is, the profits of a firm by product-public information.

Besides making markets more efficient, the advance of the social nervous system  creates the conditions for a more efficient regulatory apparatus. The first step in constructing a more efficient government regulatory apparatus is to organize the entire system of government laws, regulations and incentives in the social nervous system, such that any private actor through his terminal can quickly determine what laws are applicable to any proposed private act. In order for these conditions to exist, of course, the laws and regulations should be written in language that is understandable to the interested citizen. Private information services will create user friendly software to analyze alternatives.

Furthermore, bureaucrats will increasingly set rules based on analysis rather than exercise personal discretion based on intuition. Although these rules might be quite complicated, for instances, taking the form of an expert system, the private actor could nevertheless readily determine his options because they would be clearly communicated to him. Provided he follows the instructions, then, the private agent is free to act. This means that the private citizen can calculate the impact of the government business interface and internalize it in his own decision making. Not all cases can, however, be covered by clearly defined regulatory procedures. New situations will arise which will require careful study before rules defining permissible behavior can be constructed. In the interim, bureaucracies will continue to use discretion. As new knowledge is acquired, the regulatory process should change in an orderly fashion. Because the ability to acquire new knowledge will require observations on business processes, business will face a large increase in demands for information necessary to study the government-business interface.

This demand for information in addition to the demands for information for regulatory purposes might seem to impose an even greater paperwork burden on business than currently, but several factors will, in fact, mitigate this trend. First, most information flows from business to government will take the form of machine talking to machine. Second, with software creating the required information, the paperwork burden will be automated.

The amount of information that should be available through disclosure and access in order to maintain accountability of private and public institutions will change with advancing knowledge. In general, the information right for accountability should enable judgment of decision-making performance. For the stockholder, this would require a freedom of information act similar to the ones which have led to the opening up of government records, since the concept of freedom of information in government lays the foundation for public accountability. By accountability we mean much more than being able to discern whether agents are obeying the law. In a private corporation the stockholders should be able to judge how the firm is performing both with respect to long-term as well as short-term profits.


nextupprevious
Next: Efficiency vs Privacy Up: Information Policy Previous: Economics of information

Fred Norman
Mon 14 Dec 98