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The Evolution of Control in the Digital Economy

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  • Fabio Landini

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Abstract

Control is becoming increasingly frequent in cyberspace, to an extent that puts into question the latter’s traditional openness. In order to investigate the origins and effects of such change the paper formally model the historical evolution of digital control. In the model, the economy-wide features of the digital space emerge as a result of endogenous differences in culture (users’ preferences including motivation) and technology (platform designs). The model shows that: a) in the long-run there exist two stable culturaltechnological equilibria in the digital economy: one with intrinsically motivated users and low control; and the other with purely extrinsically motivated users and high control; b) under a closed economy - i.e. before the opening of the network to commerce, the initial emergence of a low-control-intrinsic-motivation equilibrium can be explained by the specific set of norms and values that formed the early culture of the networked environment; and c) the opening of the network to commerce can indeed cause a transition to a high-control-extrinsic-motivation equilibrium, even if the latter is Pareto inferior. Although it is too early to say whether such a transition is actually taking place, these results call for a great deal of attention in evaluating policy proposals on Internet regulation.

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 655.

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Date of creation: Oct 2012
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Handle: RePEc:usi:wpaper:655

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Keywords: Internet control; Internet regulation; motivation; on-line law enforcement; technology; endogenous preferences; evolutionary games;

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  1. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  2. Marianna Belloc & Samuel Bowles, 2010. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," Levine's Working Paper Archive 661465000000000051, David K. Levine.
  3. Fehr, Ernst & Herz, Holger & Wilkening, Tom, 2012. "The Lure of Authority: Motivation and Incentive Effects of Power," IZA Discussion Papers 7030, Institute for the Study of Labor (IZA).
  4. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
  5. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  6. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-79, August.
  7. Landini, Fabio, 2012. "Technology, property rights and organizational diversity in the software industry," Structural Change and Economic Dynamics, Elsevier, vol. 23(2), pages 137-150.
  8. Naidu, Suresh & Hwang, Sung-Ha & Bowles, Samuel, 2010. "Evolutionary bargaining with intentional idiosyncratic play," Economics Letters, Elsevier, vol. 109(1), pages 31-33, October.
  9. Samuel Bowles & Sung-Ha Hwang, 2008. "Social Preferences and Public Economics: Mechanism Design when Social Preferences Depend on Incentives," Department of Economics University of Siena 530, Department of Economics, University of Siena.
  10. Benkler, Yochai, 2002. "Intellectual property and the organization of information production," International Review of Law and Economics, Elsevier, vol. 22(1), pages 81-107, July.
  11. Irlenbusch, Bernd & Ruchala, Gabriele K., 2008. "Relative rewards within team-based compensation," Labour Economics, Elsevier, vol. 15(2), pages 141-167, April.
  12. Samuel Bowles & Astrid Hopfensitz, 2000. "The Co-evolution of Individual Behaviors and Social Institutions," Working Papers 00-12-073, Santa Fe Institute.
  13. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
  14. D. Foster & P. Young, 2010. "Stochastic Evolutionary Game Dynamics," Levine's Working Paper Archive 493, David K. Levine.
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