Informal Economies

The Economic Value of Information Diffusion

Literacy and Information

Without easy, affordable information diffusion systems, the merchant class steps in to provide informational services at a high premium. The merchant class, a middleman who profits from the poor information infrastructure in rural India, is the only winner. The poor and illiterate lose. 

I’m betting heavily on the value of information. From everything I have seen in the field and every interaction I have witnessed, I know that not much gets done without timely access to information. And virtually nothing gets done well. This is true for both societal progress in general, for organizations and for individuals. Collective, shared information is the very bedrock of progress. Without it, countless resources would be wasted as each organization, and ultimately each society, continuously reinvented every wheel. Without the very real benefits of collective ideas and progress, we are stuck. We know this, and yet the exact value of collective knowledge eludes us. It seems almost intangible; how do you put a number on it? Luckily, researchers in Boston are trying to do just that. Their results might surprise you.

Putting an economic value on reading your email

In a study titled Productivity Effects of Information Diffusion in Networks, Sinan Aral, Eric Brynjolfsson, and Marshall W. Van Alsyne asked: Do social networks impact information dispersion and does better access to information predict an individual’s ability to complete projects or generate revenue? Their answer was a resounding yes on both counts.

How did they go about answering these complex questions? First they took stock of all the relationships in a medium sized recruiting firm. Then they looked at how news spread through email at the firm over a ten-month period. They took note of two different types of information – event-related and discussion-related – and discovered that these separate types of information diffuse differently. The dispersion of event-related information was guided by network factors and demographics while discussion-related information also depended on social ties and functional relationships.

Though the information tracked pushed through the company in different ways, both types of information were important in terms of an employee’s ability to complete projects and generate revenue. Each additional ten words seen were associated with an additional 1% project completion. Greater mean rank (i.e. the rank order in the news chain among co-workers) and longer average times to receive words (how long it took to hear about it) were associated with fewer projects completed, holding constant traditional demographic and human capital variables. Amazingly, each additional “word seen” was associated with about $70 of additional revenue generated (that’s 3000 Rs per word over a ten-month period).

Missed information opportunities from low literacy

It is worth noting that this research and its results assume a certain base level of education and knowledge. To benefit from additional words seen, one needs to be able to read those words. Literacy plays a huge role in the ability to tap into modern networks and benefit from information diffusion. (For more on literacy in India see India’s Real Literacy Challenges.)

What opportunities are missed in areas like rural India where the population has a low literacy rate? Conversely, what would be the gain from each relevant word read – from Madura’s classifieds newspaper for example, if it had worked? A seller from one village may never realize that buyers from a close-by neighboring village are interested in his goods. These buyers, without the information that the goods they need are produced close by, may travel significant distances and pay significantly more for these goods. The poor and the illiterate lose. The producer doesn’t command a high price while the customer may pay a higher price than if they had access to more comparative information. Without easy, affordable information diffusion systems, the merchant class steps in to provide informational services at a high premium. The merchant class, a middleman who profits from the poor information infrastructure in rural India, is the only winner.

Information diffusion as a crucial enabler

What does this mean from a development perspective? Access to information diffusing in a given network may be a much stronger predictor of economic output than traditional human capital variables. In the absence of the written word, even local information diffusion within a village is compromised. It is not uncommon to encounter village folk who have little knowledge of the activities in even the next street of their tiny villages, let alone the next town. Without local information diffusion it is also difficult for cooperation to emerge (see related posts The Prisoners Dilemma of Development). Of course it matters what information you see and some types of information such as news and market information will yield far more value than the more pervasive gossip and entertainment.

Perhaps the most important aspect for people to lift themselves out of poverty is for them to become involved in the right kinds of information-rich networks.

 

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