This study has analysed the impact of adopting different models for the provision of public sector information by trading funds. Its basic task has been to examine the cost and benefits for society, and the effects on government revenue, of four different charging policies: profit-maximisation, average cost (cost-recovery), marginal cost and zero cost; both on their own and when interacted with various data distinctions such as raw versus value-added, and unrefined versus refined. The study focused on the six largest trading funds by data provision: The Met Office, Ordnance Survey, the UK Hydrographic Office, the Land Registry, Companies House, and the Driver Vehicle Licensing Agency.
This report has shown that the case for pricing no higher than marginal cost (which, for most digital data will be zero) on basic data products is very strong, for a number of complementary reasons. First, the distortionary costs of average rather than marginal cost pricing are likely to be high, for several reasons. The mark-up to cover fixed costs is high, as marginal costs are such a low fraction of average costs. The demand for digital data as with other information services is likely to be high and growing. There are likely to be large beneficial spill-overs in inducing users to innovate new services based on the data, as is evidently the case for other ICT services. Second, the case for hard budget constraints to ensure efficient provision and induce innovative product development is weak for public enterprises not subject to regulation and providing monopoly services without fear of competition.
It would be far better to address issues of incentives, regulation and commitment explicitly rather than indirectly through budget constraints. Finally, for several services, the Government is already providing effectively a large contribution to fixed costs, without allowing the public to enjoy the benefits of efficient pricing.
The report is biased against the (strong) presupposition that marginal cost pricing ought always to be preferable, allowing the benefit of the doubt to those who would argue for continuing the present regime unless the arguments against are almost irresistible.
Summaries for each trading fund are provided, detailing for which products a change in pricing regime would be welfare improving and the overall associated benefits and costs.
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