The Economics of Access to Information

Mariano Mosquera

There has been an important development in the study of the right of access to public information and the so-called economics of information: by combining these two premises, it is possible to outline an economics theory of access to public information.


Moral Hazard

The legal development of the right of access to public information has been remarkable. Many international conventions, laws and national regulations have been passed on this matter. In this regard, access to information has consolidated within the framework of international human rights law.

The Inter-American Court of Human Rights was the first international court to acknowledge that access to information is a human right that is part of the right to freedom of speech. The Court recognized this right in two parts, as the individual right of any person to search for information and as a positive obligation of the state to ensure the individual’s right to receive the requested information.

This right and obligation can also be seen as the demand and supply of information.
The so-called economics of information has focused on the issue of information asymmetry between the principal and the agent. The principal (society) and the agent (state) enter into a contract.1 This contract is based on the idea that the agent’s specialization and professionalism (or the politician’s, according to Weber2) enables him to attend to the principal's affairs, such as public affairs in this case. This representation contract does not provide for a complete delegation,3 but rather it involves the principal’s commitment to monitoring the agent.

When we study corruption, it is important to note that monitoring aims to ensure that the agent adjusts its behavior to comply with the contract, in order to pursue public goals, and not to serve private interests. Stiglitz4 describes moral hazard as a situation arising from information asymmetry between the principal and the agent. The principal takes a risk when acting without comprehensive information about the agent’s actions. The moral hazard means that the handling of closed, privileged information by the agent could bring about negative consequences for the principal.
In this case, it is a risk related to corrupt practices, since a public official could use the state’s power and information to achieve private benefits, and not to resolve public issues in accordance with the principal-agent contract. This creates negative social consequences.

In this model, there are a number of safeguards against moral hazard, such as monitoring institutions (with members of the opposition) and rewards for efficient and effective administration,5 among others. Access to public information could also serve as an effective means of monitoring the agent, so that the agent adjusts its behavior to comply with the contract.


The Economic Principle of Public Information

According to this principal-agent model, public information should be defined as:
information whose social interpretation enables the state to act in the best interests of society. This definition is based on the idea of information for monitoring purposes and uses a systematic approach to feedback. This definition also implies that the state is not entirely effective at adjusting its behavior by itself.

Technically, as an economic principle of public information, public information is:
information whose interpretation by the principal is useful for the agent, so that the latter adjusts its behavior to comply with the principal-agent contract. It should be noted that this is very different from the legal definition of public information, such as “any information produced or held by the state.” This type of legal definition is focused only on supply, but not on demand.

In this principal-agent model, public information stems from two different rationales: the principal’s interpretation and the usefulness for the agent. The measure of the principal’s interpretation is the likelihood of being useful for the agent. The measure of usefulness for the agent is the likelihood of adjusting the principal-agent contract.

Another totally different situation is the development of institutions that ensure the application of this principle. For example, the channels of supplied, and demanded, information, and the channels of feedback, could be strengthened so that the social interpretation that is useful for the state actually reaches the public authorities that are able to adjust policies.


Supply and Demand6

The state produces information for its own operation and for public purposes. However, for this information to form a supply of public information with an acceptable level of demand, the agent should not be the only entity to have such information.

The agent should also promote the principal's interpretation. Otherwise, the information available is for internal monitoring purposes or general internal use, but it is not public information with significant levels of social demand. Promoting the principal’s interpretation is possible if the agent reduces the cost of access for the principal, lowering the cost of interpretation as well as the bureaucratic cost of information. This is a creative exercise, in which the agent should put himself in the principal’s shoes when supplying information.

On the supply side, the main assumption is that the agent is aware of the usefulness of public information. Through feedback, public information (after being interpreted by the principal) enables the state to adjust its means and purposes more effectively. It is also assumed that information supply in the state is perfectly elastic. In other words, at a certain “price” of information, the state is able to supply infinite amounts, at least over the medium term. This is a monopoly situation in which the producer sets the price.

On the demand side, it is assumed that societies are able to interpret information within their own cultural frameworks. In this case, it must be considered that not all interpretations are valid, but only those that the agent can use to adjust its behavior to achieve social objectives. In other words, information demand cannot be used for private or market purposes.7 Information demand needs to be tailored to the agent’s usefulness, so that the latter adjusts its behavior to comply with the principal-agent contract. This is a creative exercise, in which the principal should put himself in the agent’s shoes when demanding information.

As a general rule, the lower the cost of access to information, the greater will be the demand. There is more demand at lower prices. It has been found that there is a need to appeal to an imaginative strategy that can be related to Harsanyi’s equiprobability concept.8 In this case, this concept indicates that it is equally likely to hold the positions of principal and agent.

This situation, clearly, is possible in democratic contexts. The possibility of exchanging roles between citizen and public official is real in a democracy. Therefore, this strategy enables us to consider the demand’s interpretation on the supply side and the supplier’s usefulness on the demand side. This strategy aims to solve the huge problems of an agent with closed handling of information and of a principal without interest in the operation of the state. It is understood that there is a principle of responsibility that arises from democratic order and equiprobability. The principal is responsible for knowing the minimum criteria for state operation, in order to monitor the state through the demand of public information. The agent is responsible for promoting civil monitoring through the supply of low-cost public information to the principal.


Price and Equilibrium

With a perfectly elastic information supply, the information price should be lowered (from PA to PB) to shift the supply curve (from S to S') and increase the demand “D” (from QA to QB). Price is important, since it is equal to the cost of access to public information for the principal.

The downward shift of a perfectly elastic information supply curve (in order to reduce the price) depends on two variables: the cost of interpretation (whether the information is “friendly” or not for the principal’s interpretation) and the bureaucratic cost imposed to the principal. Friendly information is open information, without interpretation filters created by the agent, and with some sort of translation to promote its interpretation within the society’s reference frameworks. The lower the interpretation and bureaucratic cost, the lower the cost of access to information for the principal will be. This increases the demand for information. 

 economics blog chart


Say’s Law

The variables that shift the supply (interpretation and bureaucratic cost) determine a lower price of information, which enables a higher level of demand. In other words, in a classical economics model, there is a direct relationship between the price and the production value determined by the supplier. However, it is also necessary to devise mechanisms to avoid Say’s law in public information.

Say’s law states that every supply creates its own demand. This has been the prevailing view on both active and passive access to public information. With regard to active information, the state decides what information is relevant and how it is published. However, with regard to passive information, the state uses various protections in order not to change its supply. Examples of this are provisions that do not explicitly make it mandatory for the state to produce the information that it does not have and which has been demanded from society.

The state also uses restrictive definitions of public information; for instance, when public information is defined as information that is related to administrative acts.
In this case, the state can refuse to provide information, claiming that information that is not related to a preexisting administrative act is not public information.

The situation today is that the supply determines the price, and weak demand does not force the state agent to lower the information price. In contrast, information supply and demand should be adjusted to the definition of an economic principle of information. Supply should be friendly with the demand.

On the other hand, if information demand is not correlated with a preexisting supply, the agent should examine the production of such information, provided that it is useful for the agent itself. In other words, demand can also create supply if the information is useful for the state to comply with its social objectives.

Certain institutional arrangements could lead the state itself to consider the production of information that it does not have.9 There could also be legal processes available, so that those requesting information can appeal any refusals to produce public information that the state claims are not useful. In addition, the lack of public information demand should be a mandatory indicator that the supplier must lower its price, reducing the interpretation and bureaucratic cost of information. In other words, a system such as the present one, with supply but without demand due to high prices, should be avoided.

 

1. Strictly from the point of view of contractual theories, it is a “pact” between the ruled and the rulers, as in the work of John Locke, and not a social contract. The term “contract” is used in order to respect the principal-agent model.
2. Max Weber, Politik als Beruf (Reclam, 1919).
3. Delegative democracy is the term O’Donnell uses to criticize the absence of social monitoring of the state. Guillermo O’Donnell, Contrapuntos: Ensayos Escogidos sobre Autoritarismo y Democratización (Paidós, 1997).
4. Richard J. Arnott and Joseph E. Stiglitz, “Moral Hazard and Optimal Commodity Taxation,” Journal of Public Economics 29.1 (1986): 1-24.
5. Incentive may be based on rewards for public officials when government targets are achieved.
6. It is not possible to make a direct analogy of information supply and demand with active and passive public information. The supply also includes conditions for passive public information.
7. Laws usually limit the information demand in this same line.
8. John Harsanyi and Reinhard Selten, A General Theory of Equilibrium Selection in Games (MIT, 1988).
9. The regulations pertaining to the law of access to public information in the City of Córdoba (Argentina) introduced the idea of that a state could consider producing the information that it does not have.

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