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Complete versions of this CEP discussion paper are available in
Zipped (Type1) Postscript [148k],
(ordinary) PDF
[46 pages, 252k],
and
2/page PDF
[240k]
formats.
It is also
CEPR DP#3846
(R3:12 w/e 23/03/03).
Published: Ch. 13, pp. 289-321 in
New Economy Handbook
(Derek Jones, ed.) Academic Press Elsevier Science, 2003
CEP DISCUSSION PAPER NO.563 March 2003
Technology and Growth
Digital goods and the New Economy
D. Quah
Digital goods are bitstrings, sequences of 0s and 1s, that
have economic value. They are distinguished from
other goods by five characteristics: digital goods
are nonrival, infinitely expansible, discrete, aspatial, and
recombinant. The New Economy is one where the
economics of digital goods importantly influence aggregate
economic performance. This Article considers such influences
not by hypothesizing ad hoc inefficiencies that the New
Economy can purport to resolve, but instead by beginning
from an Arrow-Debreu perspective and asking how digital
goods affect outcomes.
(This is not only analytically better disciplined, but
since friction-free, transparent, well-functioning
markets are where the New Economy is supposed to be
headed anyway, there is where the more enduring economic
questions arise.)
This approach sheds light on why property
rights on digital goods differ from property rights in general,
guaranteeing neither appropriate incentives
nor social efficiency; provides further insight into
why Open Source Software is a successful model of innovation and
development in digital goods industries;
and helps explain how geographical clustering matters.
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