The evolution of control in the digital economy

Abstract

Control over digital transactions has steadily risen in recent years, to an extent that puts into question the Internet’s traditional openness. To investigate the origins and effects of such change, the paper formally models the historical evolution of digital control. In the model, the economy-wide features of the digital space emerge as a result of the endogenous adaptation (co-evolution) of users’ preferences (culture) and platform designs (technology). The model shows that: a) in the digital economy there exist two stable cultural-technological equilibria: one with intrinsically motivated users and low control; and the other with purely extrinsically motivated users and high control; b) before the opening of the Internet to commerce, the emergence of a low-control-intrinsic-motivation equilibrium was favored by the specific set of norms and values that formed the early culture of the networked environment; and c) the opening of the Internet to commerce can indeed cause a transition to a high-control-extrinsic-motivation equilibrium, even if the latter is Pareto inferior. Although it is too early to say whether such a transition is actually taking place, these results call for a great deal of attention in evaluating policy proposals on Internet regulation.

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Notes

  1. 1.

    The intentional absence of control over users’ actions (e.g. in the provision of content) is a key feature of most sharing-based platforms such as Wikipedia, YouTube, Flickr, as well as the communities of free software developers and peer-to-peer file sharing networks. Similarly, the lack of control plays an important role in the decentralized mechanisms of relevance and accreditation that are implemented in on-line marketplaces such as Amazon and eBay. All these platforms can be generally considered as instances of what Benkler (2006) calls peer production. For a detailed discussion of the role that users’ decisional autonomy plays in peer production, see Benkler and Nissenbaum (2006).

  2. 2.

    See Robert Booth, Government plans increased email and social network surveillance, The Guardian, April 1, 2012, available at: http://www.guardian.co.uk/world/2012/apr/01/government-email-social-network-surveillance(last time checked: April 24, 2012).

  3. 3.

    For a detailed analysis of ACTA and related criticisms, see McManis (2008).

  4. 4.

    See Jonathan Weisman, After an Online Firestorm, Congress Shelves Antipiracy Bills, The New York Times, January 20, 2012, available at:http://www.nytimes.com/2012/01/21/technology/senate-postpones-piracy-vote.html?_r=1(last time checked: April 24, 2012).

  5. 5.

    See Claire Cain Miller and Miguel Helft, Web Plan From Google and Verizon Is Criticized, The New York Times, August 9, 2010, available at:http://www.nytimes.com/2010/08/10/technology/10net.html?_r=2&ref=technology (last time checked: April 25, 2012). For more detail on the concept of “net neutrality”, see Wu (2003a).

  6. 6.

    Lessig (1999, 2006) coined the well-known catchphrase “Code is Law” capturing the idea that, in the digital space, software code - as opposed to law, market and social norms - becomes the most powerful regulator of all. This is due to two main factors: first, the weakness of traditional law as a tool of on-line regulation; and second, the specific features of code that are associated with its malleability and nearly perfect enforceability. Overall, it is the combination of these specific features of code that, according to Lessig, makes cyberspace an arena of (potentially) perfect control. Obviously this does not mean that, at present, control is close to being perfectly implemented in the digital space. When one looks at the diffusion of open-source initiatives, as well as the adoption of multi-licensing in the distribution of software packages, it is clear that there still exist wide segments of the media industry that are characterized by low level of control. What the argument of Lessing suggests, however, is just that, even in these segments, control is potentially available and if it is not implemented there must be good reasons for it.

  7. 7.

    Similar provisions are included in the terms of service of most digital platforms. See, for instance, art. 5.5 in Facebook’s Terms of Service: “if you repeatedly infringe other people’s intellectual property rights, we will disable your account when appropriate”, available at http://www.facebook.com/legal/terms (last time checked: April 25, 2012).

  8. 8.

    See Zittrain (2000) on the creation of so-called trusted systems.

  9. 9.

    See MacKinnon (2012) on Apple’s App censorship practices.

  10. 10.

    For a similar approach, see Benkler (2002b).

  11. 11.

    This way of modelling motivational crowding out is generally called “marginal”. An alternative is to assume “categorical” crowding out. On the distinction between marginal and categorical crowding out, see Bowles (2012).

  12. 12.

    In particular, this assumption underestimates the possibility that an interior optimal rate of control exists. At the same time, however, the interior optimal rate of control would be itself a function of intrinsic motivation. It follows that, in the presence of users with heterogeneous motivations, two optimal rates of control would still exist, one with relatively low control with respect to the other. By focusing on corner solutions, we simply approximate (one or both of) these interior points and make the model easier to study.

  13. 13.

    I choose to consider users with both intrinsic and extrinsic motivations instead of purely intrinsically motivated users for two reasons: first of all, in most parts of the digital economy, users who are both intrinsically and extrinsically motivated tend to be more frequent than purely intrinsically motivated users (see, for instance, Hertel et al. 2003; Lakhani and Wolf 2005; Hars and Ou 2001); second, the comparison of effort level associated with pure intrinsic motivation and pure extrinsic motivation would make it necessary to impose additional constraints on parameters λ and ϕ, without relevant effects on the final results.

  14. 14.

    A more complex version of the model could include other behavioral types, such as purely intrinsically motivated user or users with different degrees of intrinsic motivation. At this stage, however, I prefer to favor simplicity and leave more complex specifications for further research.

  15. 15.

    For similar interpretations on the qualitative properties (i.e. optimality) of equilibria activating intrinsic motivation in an evolutionary game theoretic setting, see Belloc and Bowles (2011, 2013).

  16. 16.

    Digital rights management (DRM) systems are an example of access control technology that adds code to digital content that disables the simple ability to copy or distribute that content - at least without the technical permission of the DRM system itself (Lessig 2006). Presently, DRM is in common use by the entertainment industry (e.g. audio and video publisher). Many on-line music stores, such as Apple Inc.’s iTunes Store, as well as many e-book publisher also use DRM, as do cable and satellite service operators to prevent unauthorized use of content or services.

  17. 17.

    Deep packet inspection (DPI) systems are a form of computer network packet filtering that read and classify Internet traffic as it passes through a network, enabling the identification, analysis, blockage and even alteration of information (MacKinnon 2012). Initially, DPI were used mainly to secure private internal networks. Recently, Internet service providers (ISPs) have also started to apply this technology on the public network provided to consumers. Common uses of DPI by ISPs are lawful intercetp, policy definition and enforcement, targeted advertising, quality service and copyright enforcement.

  18. 18.

    The two graphs are adaptations of the data reported in Zittrain (2008).

  19. 19.

    Internet Systems Consortium (ISC) is a non-profit public benefit corporation dedicated to supporting the infrastructure of the universal connected self-organizing Internet - and the autonomy of its participants - by developing and maintaining core production quality software, protocols, and operations. For more detail on ISC and the data reported in Fig. 3, see http://www.isc.org (last time checked: April 30, 2012).

  20. 20.

    The Computer Emergency Response Team (CERT) Coordination Center is a research center located at Carnegie Mellon University’s Software Engineering Institute with the aim of studying Internet security vulnerabilities. The same data were originally reported by Zittrain (2006). The data are available only for the period 1988-2003 because in 2004 CERT announced it would no longer keep track of security incidents, since attacks had become so commonplace as to be indistinguishable from one another.

  21. 21.

    Software designed to infiltrate and damage a computer system (Zittrain 2006).

  22. 22.

    A similar device is usually employed in population genetics to study the effects of random migration among groups.

  23. 23.

    On the relationship between risk-dominance and stochastic stability, see (Foster and Peyton Young 1990).

  24. 24.

    At the beginning of 2012, after widespread protests, the vote on the two bills was indefinitely postponed by the U.S. Congress.

  25. 25.

    See Google-Verizon Proposal for a legislative framework for network neutrality, available at: http://static.googleusercontent.com/external_content/untrusted_dlcp/www.google.com/it//googleblogs/pdfs/verizon_google_legislative_framework_proposal_081010.pdf (last time checked: May 3, 2012).

  26. 26.

    See Cain Miller and Helft, supra note 5.

  27. 27.

    See Zack Whittacker, Wikipedia losing contributors: Fatal flaw, the community editors?, ZDNet, Augist 4, 2011, available at: http://www.zdnet.com/blog/btl/wikipedia-losing-contributors-fatal-flaw-the-community-editors/54144 (last time checked: May 3, 2012).

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Acknowledgments

The author is grateful to Ugo Pagano, Sam Bowles as well as participants to the ISLE 2012 conference at the University of Rome 3 for the useful discussions and comments. The usual caveat applies.

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Correspondence to Fabio Landini.

Appendices

Appendix A

Proof

of Lemma 1 The derivative of Eqs. 4 with respect to a gives us the following best-response function for EI- and PE-users when paired with a generic designer j: a E I, j = ϕ + λ(1 − t) and a P E, j = ϕ. By substituting away for t, we obtain the best-response level of a reported in the lemma. □

Proof

of Proposition 1 {E I, L} is proven to be Nash equilibrium as long as: (a) (ϕ + λ)2/2 > ϕ 2/2, and (b) q(ϕ + λ) − γ η k > q ϕδ/2. Condition (a) is self-explained. Condition (b) reduces to \(\delta >2(\gamma \eta k - q\lambda )=\underline {\delta }\). Similarly, {P E, H} is a Nash equilibrium as long as: (c) ϕ 2/2 > ϕ 2/2 − μ and (d) q ϕγ k < q ϕδ/2. Condition (c) is self-explained. Condition (d) reduces to \(\delta <2\gamma k=\overline {\delta }\). For 0 < η < 1, \(\underline {\delta }<\overline {\delta }\) is always true. It follows that: (i) when \(\delta >\overline {\delta }\) condition (b) is satisfied but not condition (d), hence {E I, L} is the only Nash equilibrium; (ii) when \(\delta <\underline {\delta }\) condition (d) is satisfied but not condition (b), hence {P E, H} is the only Nash equilibrium; and (iii) when \(\underline {\delta }<\delta <\overline {\delta }\) conditions (b) and (d) are simultaneously satisfied, hence both {E I, L} and {P E, H} are Nash equilibria. Corollary 1.1 follows from the fact that two necessary conditions for {P E, L} and {E I, H} to be Nash equilibria are that PE is a best-response to L and EI is a best response to H, but this is impossible because it would violate conditions (a) and (c) above. Corollary 1.2 follows directly from points (i), (ii) and (iii) above. □

Proof

of Proposition 2 For any λ > 0, a necessary and sufficient condition for {P E, H} to be Pareto efficient is that q(ϕ + λ) − γ η k < q ϕδ/2, which reduces to \(\delta <\overline {\delta }\). Otherwise, {E I, L} Pareto dominates {P E, H}. This, together with the results of Proposition 1, implies that: (i) if \(\delta <\overline {\delta }\), then {P E, H} is Pareto efficient and it is also the only Nash equilibrium of the game; (ii) if \(\delta >\overline {\delta }\), then {E I, L} is Pareto dominant and it is also a Nash equilibrium. Points (i) and (ii), together with the fact that for \(\underline {\delta }<\delta <\overline {\delta }\) both {E I, L} and {P E, H} are Nash equilibria, prove the proposition. □

Proof

of Proposition 3 The five cultural-technological equilibria are derived by simply solving the system (10)–(11) for \({\Delta }\omega _{EI}^{\tau }=0\) and \({\Delta }\omega _{L}^{\tau }=0\). The proof in this case is omitted. The asymptotic properties of each equilibrium are derived by analyzing the Jacobian Matrix J(ω E I , ω L ) associated with system (10)–(11), which takes the following form:

$$J=\left( \begin{array} {ll} (1-2\omega_{EI})\left[\omega_{L}\left( \frac{\lambda^{2}}{2}+\phi\lambda+\mu \right)-\mu \right] &\quad\quad\quad\,\, (\omega_{EI}-\omega_{EI}^{2})\left( \frac{\lambda^{2}}{2}+\phi\lambda+\mu \right) \\ \quad\quad\,\,\,(\omega_{L}-{\omega_{L}^{2}})\left[q\lambda+\gamma k (1-\eta)\right] & (1-2\omega_{L})\left\lbrace\omega_{EI} \left[q\lambda+\gamma k (1-\eta)\right]+\frac{\delta}{2}-\gamma k \right\rbrace \end{array} \right)$$

At {0, 0}, we have

$$J=\left( \begin{array}{cc} -\mu & 0 \\ 0 & \frac{\delta}{2}-\gamma k \end{array} \right)$$

from which it follows that

$$ Tr(J)=-\mu+\frac{\delta}{2}-\gamma k \;\;\;\;\;\;\;\; and \;\;\;\;\;\;\;\; Det(J)=-\mu\left( \frac{\delta}{2}-\gamma k\right) $$
(16)

Since Tr (J) < 0 and Det (J) > 0 for any δ < 2γ k, {0, 0} is asymptotically stable.At {1, 0}, we have

$$J=\left( \begin{array}{cc} \mu & 0 \\ 0 & q\lambda-\gamma\eta k+\frac{\delta}{2} \end{array} \right)$$

from which it follows that

$$ Tr(J)=\mu+ q\lambda -\gamma\eta k+\frac{\delta}{2} \;\;\;\;\;\;\;\; and \;\;\;\;\;\;\;\; Det(J)=\mu \left( q\lambda -\gamma\eta k+\frac{\delta}{2}\right) $$
(17)

Since Tr (J) > 0 and Det (J) > 0 for any δ > 2(γ η kq λ), {1, 0} is unstable.At {0, 1}, we have

$$J=\left( \begin{array}{cc} \frac{\lambda^{2}}{2}+\phi\lambda & 0 \\ 0 & -\frac{\delta}{2}+\gamma k \end{array} \right)$$

from which it follows that

$$ Tr(J)=\frac{\lambda^{2}}{2}+\phi\lambda -\frac{\delta}{2}+\gamma k \;\;\;\;\;\;\;\; and \;\;\;\;\;\;\;\; Det(J)=\left( \frac{\lambda^{2}}{2}+\phi\lambda\right)\left( \gamma k-\frac{\delta}{2}\right) $$
(18)

Since Tr (J) > 0 and Det (J) > 0 for any δ < 2γ k, {0, 1} is unstable.At {1, 1}, we have

$$J=\left( \begin{array}{cc} -\frac{\lambda^{2}}{2}-\phi\lambda & 0 \\ 0 & -q\lambda+\gamma\eta k -\frac{\delta}{2} \end{array} \right)$$

from which it follows that

$$ \begin{array}{l} Tr(J)=-\frac{\lambda^{2}}{2}-\phi\lambda -q\lambda +\gamma\eta k -\frac{\delta}{2} \;\;\;\;\;\;\;\; and \;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\; \\ \;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\; Det(J)=-\left( \frac{\lambda^{2}}{2}+\phi\lambda\right) \left( \gamma\eta k -q\lambda -\frac{\delta}{2}\right) \end{array} $$
(19)

Since Tr (J) < 0 and Det (J) > 0 for any δ > 2(γ η kq λ), {1,1} is asymptotically stable.At \(\lbrace \omega _{EI}^{*},\omega _{L}^{*} \rbrace \), we have

$$J=\left( \begin{array} {cc} 0 & \frac{\left( 2\gamma k-\delta\right)\left[2q\lambda-2\gamma\eta k+\delta\right]}{4\left[q\lambda+\gamma k(1-\eta)\right]^{2}} \left( \frac{\lambda^{2}}{2}+\phi\lambda+\mu\right) \\ \frac{2\mu\lambda(\lambda+2\phi)}{\left[\lambda(\lambda+2\phi)+2\mu\right]^{2}} \left[ q\lambda+\gamma k(1-\eta)\right] & 0 \end{array}\right)$$

from which it follows that

$$ \begin{array}{l} Det(J)=- \frac{\left( 2\gamma k-\delta\right)\left[2q\lambda -2\gamma\eta k+\delta\right]}{4\left[q\lambda +\gamma k(1-\eta)\right]^{2}} \left( \frac{\lambda^{2}}{2}+\phi\lambda +\mu\right) \;\;. \;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\; \\\quad\qquad\qquad\qquad\qquad\qquad\qquad\qquad\qquad. \;\; \frac{2\mu\lambda(\lambda +2\phi)}{\left[\lambda(\lambda +2\phi)+2\mu\right]^{2}} \left[ q\lambda +\gamma k(1-\eta)\right] \end{array} $$
(20)

Since Det (J) < 0 for any δ > 2(γ η kq λ), \(\lbrace \omega _{EI}^{*},\omega _{L}^{*} \rbrace \) is a saddle. □

Proof

of Proposition 4 From Definition 3 and the value of \(\omega _{EI}^{*}\) and \(\omega _{L}^{*}\) reported in Proposition 3 it follows that:

  • μψ(2γ kδ)/2[δ + 2(q λγ k η] ⇔

    $$ r_{01}=\omega_{EI}^{*}=\frac{2\gamma k-\delta}{2\left[q\lambda +\gamma k(1-\eta)\right]}\;\;\;\;and\;\;\;\;r_{10}=1-\omega_{L}^{*}=\frac{\psi}{\psi +2\mu} $$
    (21)
  • μ < ψ(2γ kδ)/2[δ + 2(q λγ k η] ⇔

    $$ r_{01}=\omega_{L}^{*}=\frac{2\mu}{\psi +2\mu}\;\;\;\;and\;\;\;\;r_{10}=1-\omega_{EI}^{*}=\frac{\delta + 2(q\lambda -\gamma k\eta)}{2\left[q\lambda +\gamma k(1-\eta)\right]} $$
    (22)

where ψ = λ(λ + 2ϕ). According to Definition 5, E 0 is SSS if and only if r 10 < r 01. Simple algebra shows that, given Eqs. 20 and 21, the latter condition holds if and only if k < [ψ(2q λ + δ) + 2μ δ]/2γ(2μ + η ψ) = k . The second part of the proposition follows directly from Proposition 2. □

Appendix B

Payoffs in Table 1

Let us indicate with U i, j the utility of an i-type user when matched with a j-type designer, and with π j, i the return to an j-type designer when matched with a i-type user. Moreover, let us write a i, j as the best-response level of a for an i-type user when matched with a j-type designer. Given Eqs. 1 and 2 we have:

$$ U_{EI,j}=[\phi +\lambda(1-t)]a_{EI,j}-\frac{a_{EI,j}^{2}}{2}-\mu t \;\;\;\; , \;\;\;\; U_{PE,j}=\phi a_{PE,j}-\frac{a_{PE,j}^{2}}{2} $$
(23)
$$ \pi_{L,i}=q a_{i,L} -\gamma\eta(\lambda)k \;\;\;\; , \;\;\;\; \pi_{H,i}=q a_{i,H}-\frac{\delta}{2} $$
(24)

where η(λ) takes the following form:

$$ \eta(\lambda)=\left\{\begin{array}{ll} 1, & \text{if } i=PE \\ & \\ \eta, & \text{if } i=EI \end{array}\right. $$
(25)

By replacing into Eqs. 23 and 24 the value for a i, j reported in Lemma 1, and substituting away for t (i.e. replacing t = 0 and t = 1 for a match with an L- and a H-type designer respectively), we obtain the following results:

$$ U_{EI,L}=\frac{(\phi +\lambda)^{2}}{2} \;\;\;\; , \;\;\;\; U_{EI,H}=\frac{\phi^{2}}{2}-\mu \;\;\;\; , \;\;\;\; U_{PE,L}=U_{PE,H}=\frac{\phi^{2}}{2} $$
(26)
$$ \pi_{L,EI}=q (\phi +\lambda) -\gamma\eta k \;\;\;\; , \;\;\;\; \pi_{L,PE}=q\phi -\gamma k \;\;\;\; , \;\;\;\; \pi_{H,EI}=\pi_{H,PE}=q\phi -\frac{\delta}{2} $$
(27)

Replicator equations

The systems of replicator equations represented by Eqs. 10 and 11 is obtained as follows. Let’s write the probability that an agent (user and designer) of type i switches to type j at time τ as \(p_{ij}^{\tau }\). Given the updating process described above we have:

$$ p_{ij}^{\tau}=\left\{\begin{array}{ll} \beta \left( V_{j}^{\tau}-V_{i}^{\tau}\right), & \text{if }V_{j}^{\tau}>V_{i}^{\tau} \\ & \\ 0, & \text{if }V_{j}^{\tau}\leq V_{i}^{\tau} \end{array}\right. $$
(28)

for i, j = E I, P E and ij in the case of users and i, j = L, H and ij in the case of designers. On this basis, the expected fractions of EI-users in period τ + 1 is given by:

$$ \omega_{EI}^{\tau + 1}= \omega_{EI}^{\tau}-\omega_{EI}^{\tau} (1-\omega_{EI}^{\tau})\alpha \sigma_{PE}\beta(V_{PE}^{\tau}-V_{EI}^{\tau})+(1-\omega_{EI}^{\tau})\omega_{EI}^{\tau} \alpha \sigma_{EI}\beta(V_{EI}^{\tau}-V_{PE}^{\tau}) $$
(29)

where σ P E and σ E I are two binary functions such that σ P E = 1 if \(V_{PE}^{\tau }>V_{EI}^{\tau }\) and is zero otherwise, σ E I = 1 if \(V_{EI}^{\tau }\geq V_{PE}^{\tau }\) and is zero otherwise, and σ P E + σ E I = 1. Equation 29 reads as follows: the expected fraction of EI-users at τ+1 is given by the fraction of EI-users at τ (first term), minus the fraction of EI-users who are paired with an PE-user and switch their type (second term), plus the fraction of PE-users who are paired with an EI-user and switch their type (third term). Similarly, the expected fractions of L-designers in period τ + 1 is given by:

$$ \omega_{L}^{\tau + 1}= \omega_{L}^{\tau}-\omega_{L}^{\tau} (1-\omega_{L}^{\tau})\alpha \sigma_{H}\beta(V_{H}^{\tau}-V_{L}^{\tau})+(1-\omega_{L}^{\tau})\omega_{L}^{\tau} \alpha \sigma_{L}\beta(V_{L}^{\tau}-V_{H}^{\tau}) $$
(30)

where σ H = 1 if \(V_{H}^{\tau }>V_{L}^{\tau }\) and is zero otherwise, σ L = 1 if \(V_{L}^{\tau }\geq V_{H}^{\tau }\) and is zero otherwise, and σ H + σ L = 1. Subtracting \(\omega _{I}^{\tau }\) and \(\omega _{L}^{\tau }\) from both sides of Eqs. 29 and 30 respectively and rearranging we get Eqs. 10 and 11.

Stochastic dynamical system

In the stochastic environment described in Section 4, the expected fraction of EI-users in period τ + 1 is given by

$$ \begin{array}{l} \omega_{EI}^{\tau + 1}= [\omega_{EI}^{\tau}-\omega_{EI}^{\tau} (1-\omega_{EI}^{\tau})\alpha \sigma_{PE}\beta(V_{PE}^{\tau}-V_{EI}^{\tau})+\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\\ \;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;+(1-\omega_{EI}^{\tau})\omega_{EI}^{\tau} \alpha \sigma_{EI}\beta(V_{EI}^{\tau}-V_{PE}^{\tau})]\chi_{u}^{\tau}+\nu_{EI}^{\tau}(1-\chi_{u}^{\tau}) \end{array} $$
(31)

where σ P E and σ E I are two binary functions such that σ P E = 1 if \(V_{PE}^{\tau }>V_{EI}^{\tau }\) and is zero otherwise, σ E I = 1 if \(V_{EI}^{\tau }\geq V_{PE}^{\tau }\) and is zero otherwise, and σ P E + σ E I = 1, and where

$$ \chi_{u}=\frac{n_{u}^{\tau}}{n_{u}^{\tau}+\varepsilon s_{u}^{\tau}}=\frac{1}{1+\varepsilon\rho_{u}} $$
(32)

is a normalizing factor that varies according to the number of new users who enter into the economy. The part of Eq. 31 inside the square brackets refers to the inside population and reads as follows: the expected fraction of EI-users at τ+1 is given by the fraction of EI-users at τ (first term), minus the fraction of EI-users who are paired with an PE-user and switch their type (second term), plus the fraction of PE-users who are paired with an EI-user and switch their type (third term). Once such updating process is completed, \(s_{u}^{\tau }\) new users enter the economy with probability ε. The fraction of EI-users at the beginning of next period is thus given by the updated fraction of EI-users normalized by the new size of the users’ population (i.e. multiplication by \(\chi _{u}^{\tau }\)), plus the fraction of EI-users that are included in the set of new entrants (i.e. \(\nu _{EI}^{\tau }(1-\chi _{u}^{\tau })\)). Similarly, the expected fractions of L-designers in period τ + 1 is given by:

$$ \begin{array}{l} \omega_{L}^{\tau + 1}= [\omega_{L}^{\tau}-\omega_{L}^{\tau} (1-\omega_{L}^{\tau})\alpha \sigma_{H}\beta(V_{H}^{\tau}-V_{L}^{\tau})+\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\\ \;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;\;+(1-\omega_{L}^{\tau})\omega_{L}^{\tau} \alpha \sigma_{L}\beta(V_{L}^{\tau}-V_{H}^{\tau})]\chi_{d}^{\tau}+\nu_{L}^{\tau}(1-\chi_{d}^{\tau}) \end{array} $$
(33)

where

$$ \chi_{d}=\frac{n_{d}^{\tau}}{n_{d}^{\tau}+\varepsilon s_{d}^{\tau}}=\frac{1}{1+\varepsilon\rho_{d}} $$
(34)

where σ H = 1 if \(V_{H}^{\tau }>V_{L}^{\tau }\) and is zero otherwise, σ L = 1 if \(V_{L}^{\tau }\geq V_{H}^{\tau }\) and is zero otherwise, and σ H + σ L = 1. Subtracting \(\omega _{EI}^{\tau }\) and \(\omega _{L}^{\tau }\) from both sides of Eqs. 31 and 33, respectively, we get:

$$ {\Delta}\omega_{EI}^{\tau}= \omega_{EI}^{\tau} (1-\omega_{EI}^{\tau})\alpha\beta(V_{EI}^{\tau}(\omega_{L}^{\tau})-V_{PE}^{\tau}(\omega_{L}^{\tau}))\chi_{u}+(1-\chi_{u})(\nu_{EI}^{\tau}-\omega_{EI}^{\tau}) $$
(35)
$$ {\Delta}\omega_{L}^{\tau}= \omega_{L}^{\tau} (1-\omega_{L}^{\tau})\alpha\beta(V_{L}^{\tau}(\omega_{EI}^{\tau})-V_{H}^{\tau}(\omega_{EI}^{\tau}))\chi_{d}+(1-\chi_{d}) (\nu_{L}^{\tau}-\omega_{L}^{\tau}) $$
(36)

Equations 35 and 36 represent a system of differential equations which describes how the distribution of types \(\lbrace \omega _{EI}^{\tau }, \omega _{L}^{\tau } \rbrace \) evolves over time. The main difference with the system composed of Eqs. 10 and 11 is that this time there are also some stochastic components represented by variables χ u , χ d , \(\nu _{EI}^{\tau }\) and \(\nu _{L}^{\tau }\). The latter are the sources of exogenous variation that make a transition between the basins of attraction of the two stable equilibria E 0 and E 1 possible.

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Landini, F. The evolution of control in the digital economy. J Evol Econ 26, 407–441 (2016). https://doi.org/10.1007/s00191-016-0450-z

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Keywords

  • Internet control
  • Internet regulation
  • Motivation
  • On-line law enforcement
  • Technology
  • Endogenous preferences
  • Evolutionary games

JEL Classification

  • C73
  • D02
  • K00
  • L23