miscellaneous factZ

“The indirect costs in higher education (through delays and difficulties in clearing rights) are very hard to estimate. [SCONUL has] attempted an estimate of the static costs in higher education and have arrived at a minimum figure of the order of 30 M/year.” [emphasis added]

Source: SCONUL (Society of College, National and University Libraries) submission to Gowers review quoted at para 51 of the British Academy report on Copyright and research in the humanities and social sciences.

Note that this is not the costs of the copyrights themselves (i.e. payments to use the copyright work) but £30 million in transaction costs related to copyright clearance.

Quite a lot of open source and open knoweldge projects use micro donations — sums of $5 or less. It is interesting to note that if you, as a donor, give $1 via PayPal (one of the most popular payment systems) paypal charge 35 cents. That means at the $1 level transaction costs (excluding any monopoly/oligopoly effects) works out at over 35%.

“In 2003 Medicare spent less than 2 percent of its resources on administration, while private insurance companies spent more than 13 percent.”

Source: Paul Krugman and Robin Wells, The Health Care Crisis and What to Do About It, New York Review of Books, Volume 53, Number 5, March 23, 2006.

This implies that a massive 11% of private insurance companies expenditure goes on pure transaction costs (monitoring, enforcement, litigation etc etc).

More Details

Krugman and Wells aregue that the two main problems of the US system are:

• Its lack of universal coverage
• Its extremely high per capita cost of healthcare provision (compared to other countries developed countries)

With regard to the second item they argue that much of the massive differential in per capita costs of health care in the United States is due to the uniquely high level of private (rather than public) provision in the US system. This is for two reasons. First, centralized, public provision, results in much lower transaction costs compared to private provision. Second, centralized, public providers can bargain more effectively with suppliers to obtain lower prices. As evidence for the first point they state:

The cost advantage of public health insurance appears to arise from two main sources. The first is lower administrative costs. Private insurers spend large sums fighting adverse selection, trying to identify and screen out high-cost customers. Systems such as Medicare, which covers every American sixty-five or older, or the Canadian single-payer system, which covers everyone, avoid these costs. In 2003 Medicare spent less than 2 percent of its resources on administration, while private insurance companies spent more than 13 percent.

At the same time, the fragmentation of a system that relies largely on private insurance leads both to administrative complexity because of differences in coverage among individuals and to what is, in effect, a zero-sum struggle between different players in the system, each trying to stick others with the bill. Many estimates suggest that the paperwork imposed on health care providers by the fragmentation of the US system costs several times as much as the direct costs borne by the insurers.

Printers and their ink cartridges are good examples of of complementary goods. The market is particularly interesting because until recently the printer seller was the only provider of cartridges for that printer. Over the last decade it has become possible for people to get ink cartridges from others in the form of ‘refills’, that is refilled cartridges (it is hard to make the cartridges independently but not hard to refill them. Interestingly manufactuers of printes have tried to stop this practice by ‘locking’ the cartridge to their printer with special microchips — invoking the DMCA where necessary to prevent people reverse engingeering the locks (e.g. Lexmark).

One question of particular interest to me was how rational people were in relation to the complementaries present here. After all when you buy the printer the main piece of information you have is its price. I’ve also been struck by the number of people (and firms) who don’t buy refills even though they cost a fraction of the price of the manufacturer ones (often they may not even know they can get refills). Finally for printers the cost of the cartridges often dwarf the cost of the printer. Thus, I was particularly interested when ‘Which’ magazine (run by the Consumers Association in the UK to provide independent evaluation of products) provided an evaluation of printers in their February issue along with details of the cost of buying and printing with a given printer.