Economics of Information Systems

Abstract

n an information-processing chain, only the initial inputs (“environment”) and the terminal outputs (“actions”) affect directly the benefit to the user who maximizes its expected excess over cost. All intermediate flows (“symbols”) affect directly only costs and delays. Delays affect benefit non-additively, through “impatience” and, possibly, “obsolescence.” Traditionally, statistical theory disregards delays, and communication theory treats them as costs. A more complete, unifying approach is proposed, and it is asked whether convexity conditions (e.g., “decreasing marginal returns”) required for competitive market equilibrium are satisfied.