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Overall, however, we suggest that the monitoring costs ought to be significantly lower under (ii) than (1).

What is the economic impact of a blanket fee? In the limit it may not affect the amount of photocopying. This perhaps paradoxical result will be obtained if the library finances the cost of the photocopying permission fee by means of a lump sum (i.e., poll) tax which is levied uniformly on both users and non-users of the photocopying privilege. The poll tax places, however, an undesirable burden, on non-users who are, in effect, called upon to subsidize the users. On equity grounds the poll tax is clearly undesirable. Whether it should be implemented depends on how much the society would suffer from a reduction in socially desirable photocopying, which indubitably would occur if user fees were employed. Since unquestionably, a good deal of photocopying does not have any benefits over and above those that accrue to the researcher himself, arguments from both efficiency and equity standpoints would support our preference towards user fees. It should be noted that if a library utilizes the user fee to collect the revenue, it commits resources to generating the same information that is necessary under the per-use license. If it is believed that the collection costs associated with the user fee are excessive, then at the risk of some unfairness a lump-sum tax ought to be imposed. The lump-sum tax is in essence in use now; all faculty members, students, and others contribute at least part of the library budget either in the form of lower salaries or higher tuition fees. Such payments are clearly independent of the use a particular individual makes of the library resources.

B.2.2 PER-USE LICENSE

The efficiency of per-use licensing depends on the expense associated with monitoring the use. Herein lies the main disadvantage of the peruse license over the blanket license. The costs of monitoring are technologically determined. At present these costs are probably high in the area of journal use, but relatively low in the area of bibliographic and data base use. Furthermore, the costs will depend on how coarsely use is defined. For example, different user fees may be imposed on recent journal copies as opposed to older copies. Medical journals may have different user fees than physical science journals, etc. The finer the partitioning of users, uses, and used objects, the better will the pricing system function as a signal towards efficient allocation of resources. Those gains in allocative efficiency must be weighted against the attendant information costs.

B.2.3 TWO-PART TARIFFS

The third system is a combination of the two preceeding ones. The two-part tariff pricing scheme involves a fixed entry fee, independent of use, and the per-use price. Such a system is currently employed

by the telephone company, for example, which charges a connection fee as well as the per-call charge. Such pricing systems have been recommended for industries in which production costs involve a substantial fixed cost element and in which, as a consequence, socially desirable pricing at marginal cost is not feasible in that it does not cover the total cost of output. A form of the two-part tariff would be a system whereby a library would purchase the license to photocopy by purchasing the hard copy of a journal and also pay a fee for each photocopy of an article from a journal in its collection. This would suggest that a pure per-use license is difficult to conceive of because the hard copy price of a journal is in fact an entry fee. (And we note that often libraries pay higher subscription prices than do individuals.) This may be so, but we prefer for reasons of taxonomy to think of the entryfee component as being an explicit payment for the right to photocopy.

It is clear that the current system does not fit neatly into either of these three categories of exclusion/collection mechanisms. There is in the library price an implicit component of a license to photocopy. But the extent of photocopying which such a license allows is not clear since the meaning of "fair use" is not apparent to either the publishers or to the librarians. Publishers expect some recompense for photocopying of their journals when such photocopying violates the existing statute. This brings on the element of the per-use license discussed above with an additional complication that some forms of use are exempt from that license, the "educational exemption" for example.

The first step in thinking about the appropriate form of a new copyright law should involve a clear understanding of the kinds of pricing mechanism that ought to be employed. This outline provides a basic classification scheme. In the next section, we shall begin to assess more precisely the various transactions costs associated with the three fundamental pricing mechanisms. [Note that for ease of exposition we have not followed here a suggestion often found in the literature that per-use and blanket mechanisms are but de generate forms of the two-part (or multi-part) tariff system. ]

B.3

ESTIMATING TRANSACTIONS COSTS

Although economic efficiency can be improved by the institution of per-use charges, it is obvious that some resources must be used to collect these charges. These "transactions costs" that are associated with an "exclusion mechanism" may be a negligible or significant sum relative to the charges that are imposed. In this section, we shall develop alternative estimates of their magnitude.

Exclusion mechanisms are the procedures by which one can determine who is using a good or service and then bill them for that usage. The difficulties of establishing such mechanisms have been cited as part of the rationale for the collective provision of public goods. At the present time there is a large but unknown amount of photocopying of

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copyrighted works. The following estimates are cited merely to shed some light on the magnitude and distribution of photocopying.

27.5 billion paper copies were made by photo-copiers and
photo-duplicators in the U.S. in 1967.

1.

2. Approximately 60 percent of the material copied by libraries

is copyrighted.

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d.

5 percent of the publishers produced 40 percent of the material being copied.

Currently, almost none of this photocopying results in an associated royalty payment or license fee.

A similar situation exists with the use of computer data bases. These data bases may contain scientific, economic or statistical data, bibliographic material, or medical and legal information. In many cases the data has associated with it computer software to facilitate access and use. There are a variety of existing agreements by which the creator of the data base collects for its use either directly from the customer or from one or more of the computer system operators who provide access to the data base.

As we described above, in both the photocopying and computer data base areas the economic issues are the comparative efficiencies of free provision versus the implementation of user charges, and the relative magnitudes of the collection and enforcement costs (the transactions costs).4 These costs will depend on whether blanket licenses or peruse licenses are utilized.

The obvious archetypes of the blanket license are those employed by the performing rights societies (e.g., ASCAP and BMI). Here, a clearinghouse is employed to facilitate the contracting arrangements. The proposed Australian copyright royalty collection operation that resulted from the Morehouse decision will operate in a similar manner. (The decision in the Morehouse case was that libraries in Australia are responsible and liable for photocopying of copyrighted works done on in-library copying machines.)

Usually ASCAP's operating costs are less than 20 percent of revenue. che Australian publishers association has predicted that the costs of their monitoring activity, analysis, and transactions will be

approximately A$.01 per page (one Australian cent per page).5 In both systems, a significant part of the cost is the monitoring of usage (what is performed or copied) so that the revenues can be divided among the copyright holders.

In looking for archetypal billing and collection systems for per-use charges, we found two different industries with well-developed and possibly interesting accounting and billing mechanisms, computer "service bureaus" and local telephone operating companies. One large service bureau organization estimated that the costs of monitoring use, accounting, billing, etc., generally are 15 to 18 percent of total costs. On the other hand, Pacific Telephone Company (which has complex multi-message unit charges for local calls) records shows that all accounting operations amounted to only 3 percent of company expenses for 1975. (Both the Accounting Department expenses and total expenses included all current and capital items. See Fig. 3.1.)

The greater the amount of information collected, stored, and analyzed, the higher the costs. For example, New York Telephone does not, as a rule, itemize "message unit" calls on either residential or business customer bills. However, now they must provide such a list to the customer on demand if the customer is willing to pay the extra cost ($1.50 for residential customers and $1.50 plus $.25 per each extra page for business customers).6 An important point to remember is that in neither case do these costs include the expense of determining how to pay out the revenues. These disbursement costs will be related to the degree of accuracy required (i.e., sampling vs. 100 percent monitoring) and the frequency distribution of the copyright holders. Recent data from the British Lending Library (BLL) indicates the skewed nature of the frequency distribution. Their survey indicated that of 14,967 serial titles, the top 210 titles accounted for 20 percent of the demand for photocopies and the 6,000 least requested titles accounted for the last 10 percent of the demand.

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The cumulative distribution curve is shown in Figure B.2. Figure 3.3 lists the 15 most "popular" titles.

Although the BLL is a "library of last resort" for academic libraries, it is a major resource for the specialized industrial libraries who comprise a majority of their borrowers. Therefore, we can assume that, although the BLL data may not characterize the photocopying in the U.S. in an unbiased manner, the U.S. data will also exhibit a high degree of skewness. Depending on the exact nature of the payment algorithm, this skewness can lead to either lower or higher costs in the distribution of royalties to copyright holders. The existence of a high threshold number of copies per time period -- unless X copies per month are made, no royalty payments are distributed -- coupled with the skewed distribution could reduce transaction costs in the same way that "deductibles" do for an insurance policy. On the other hand, in the absence of a threshold number, quite large samples may be required to capture the copying of the more obscure works.

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3.2203

91.7

1.2*

92.9

2.9%

1.1214

3.6451

114.6

0.9*

115.5

3.2%

1.2424

113.3

0.5

113.8

1.3689

0.3

1975

$2.2814

1.0019

1976f

2.5237

1977f

1978f

Notes:

f = forecast.

*regional toll centers opened in 1975 and 1976.

Source:

Conversation with Pacific Telephone Company July 1976.

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