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that the additional revenue gained from user charges would not be sufficient to justify the collection costs, user charges are not desirable. It is those who oppose the introduction of user charges, however, who must provide a positive showing that the collection costs are prohibitive, for otherwise the implications of economic analysis are quite clear: carefully structured user fees are a rational and desirable method of defraying at least some part of the fixed costs incurred in production and dissemination of scientific and technical information.

The second argument for user charges is less complex. An imposition of user charges would discourage some use of the units of the commodity owned by the institutions. Some of these discouraged users would enter the private market. By increasing private demand, they would stimulate production of the commodity, thus driving down its average cost. Some of those gains could then be passed on to the. buyers in the form of lower prices, yielding concomitant improvement in the dissemination of the product.

The reader will have noted that in this summary of the paper, we have dealt with the class of excludable public goods. The discussion in the paper is couched specifically in terms of scientific and technical journals. We differentiated in the paper between personal and library subscriptions and argued strongly for the imposition of user charges on those who utilize the library copy by, for example, photocopying articles from a journal. We built our argument on a very general proposition which asserts that no group of consumers should be exempted from financing some part of production costs unless reasons of equity, costly collection, or significant positive externalities stop us from doing so. The formulae for prices presented in the paper apply when those objections to the use of prices as rationing devices are not present.1

Those formulas and the arguments behind them apply not only to journals. Instead of journals, we can imagine a system in which the publishers do not provide hard copy to the subscribers but rather video discs or tapes of journals. Those discs or tapes can then be read using minicomputers and/or display consoles. In such a hypothetical system, we would again have at least two-tier price structure:

1See J.A. Ordover and R.D. Willig, "On the Role of Information in Designing Social Policy towards Externalities," Center for Applied Economics, Discussion Paper #76-03, New York University, for the discussion of the case in which there are external effects. Those effects exist whenever the societal benefit from a given activity exceeds the private benefit that accrues to the person who undertakes that particular activity. It may be argued that the users of scientific and technical information generate significant positive externalities. If so, then perhaps information should be made freely available to all users and not only to those who use it in the library.

price for individual subscribers and another for institutional subscribers including libraries. In addition, in accordance with our theoretical analysis, user charges will be levied as well. Indeed, in this modified system, user charges are even more desirable than in the presently extant system. This is so because the collection costs would be much lower if the information were transmitted through computer.

APPENDIX C2

ON THE OPTIMAL PROVISION OF JOURNALS QUA

EXCLUDABLE PUBLIC GOODS

by

J. A. ORDOVER* AND R. D. WILLIG*

NEW YORK UNIVERSITY AND BELL LABORATORIES

*The views presented in this paper are solely those of the authors and do not necessarily represent those of New York University or Bell Laboratories. Authors' names are in alphabetical order.

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I. Introduction

There are many interesting and important policy issues surrounding the provision of technical journals that arise from the simple fact that journals can, at once, be offered to the reading public through libraries and through personal subscriptions. It is said, for example, that publishers are experiencing increasing difficulty in recovering their "first copy costs" (set-up costs) due to the rapid growth of reprography. Recognition of this new problem has lead to intense public debate over copyright protection against uncompensated private dissemination of reproduced library materials.1 There is a related accelerating trend towards the establishment of a dual pricing structure by publishers -- high rates for library subscriptions and lower rates for personal ones.

In this paper we analyze the socially optimal provision of such goods as journals which can be viably used in either the private or public modes. This is the class of "excludable public goods," which we take to be characterized by the following canonical properties:

(a) There exists a technology of public provision of the good
under which the marginal user costs are zero.

(b) The good can be replicated, so that private provision is
feasible.

(c) The subjective value of the good to consumers is greater in the private mode than it is in the public mode.

Properties (a) and (b) together say that the good can be feasibly offered to consumers in either or both modes. We define the public mode as the uncongested use of a single unit of the good by many consumers, irrespective of whether or not a user fee is levied. In contrast the private mode presupposes exclusive use of a unit of the good by each consuming agent. Of course, if consumers were indifferent between obtaining the good in the two modes, then consideration of profit or social welfare would dictate the production of only a single unit to be shared by all users, and the standard public goods analyses would apply unchanged.

It is property (c) that captures the hitherto analytically ignored characteristic of journals which leads to its bifurcated provision and to the concomitant policy issues. 2 Given (c), there is a tradeoff between the convenience of the private mode and the economy of the public one. Theoretical and practical questions arise as to the determination of the modes of delivery and the associated prices that are optimal for welfare and for profits. These are the central concerns of this study. Throughout the paper, to make our analysis Note: Superscripts refer to Footnotes beginning on page C2-38. Bracketed numbers refer to References beginning on page C2-40. Numbers in parentheses refer to equations in the text.

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