European Geologist Journal 41

Challenges and opportunities with charging for geological information in land use planning

By Elisabeth Häggquist and Linda Wårell, Economics Unit, Luleå University of Technology, SE-97187 Luleå, Sweden

Abstract

Land use should meet current and future societal needs while keeping conflicts bounded and functional (e.g. at a minimum). Analysis of mapped data has become an important part of understanding and managing land use. This paper discusses the economic characteristics of geological information in relation to land use conflicts and the impact of adopting different pricing models for the provision of geological information. Moreover, we highlight some aspects that may make geological maps less pertinent than other geoinformation sources, given the often scarce data, slow diffusion and the high cost of investing in additional information.

Introduction

Society demands adequate information on many complex and interrelated aspects of its activities. Land use management has therefore become increasingly important in order to overcome the problems connected to urban development and deteriorating environmental quality. While delivering both sustainable development and livable communities, land use should keep conflicts at a minimum. In this paper we discuss the economical characteristics of geological information, in relation to land use conflicts, and the potential impact of different pricing models on the provision of information.

Information goods are characterised by large sunk costs of development and negligible costs of reproducing and distributing. The bulk of the costs are up front, in part since the gathering of new information is labour intensive and requires skilled staff. The production costs of the first unit are very high, but thereafter the cost of additional copies is very low. Due to this the production of geological information leads to a natural monopoly. Geological information is therefore mainly collected by government-funded geological surveys.

Although geological information is assumed to be non-rival in consumption, the information can be excludable through licensing. This implies that even if relevant data on land changes exists, it may not always be included in the land use planning, since all additional data comes at an additional cost. Land use measurements help resolve how to utilise the available land resources for food, shelter, development, conservation, etc. If not all relevant aspects of a region are considered, it is likely that some groups or interests will be excluded from the planning process, which in itself increases the risks of conflicts.

On the other hand freely available data, and the transparency it enables, might be deliberately misinterpreted by some individuals or groups as promoting socially undesirable outcomes (Bannister and Connolly, 2011).

Market challenges due to pricing structures

The literature on geospatial data and pricing models tends to include monopoly pricing, cost recovery (full or price discriminative) and marginal cost (see summary in Table 1). Monopoly pricing implies a high uniform price and aims to provide profit for the government. In the cost recovery models the data are priced to recover most of the costs of producing, maintaining and distributing. Each new user is required to get a license at a price that enables the producer to recover the full cost of the data. This implies that the producer has prior knowledge on all purchases and this is taken into account when pricing. Under full cost recovery the geological information should not require direct public sector funding since the average long-run cost will be covered; however, few agencies have even aimed at full coverage of costs. Given a price discriminative cost recovery model, additional governmental funds will be needed. Marginal cost implies a uniform low price set to recover cost of distribution and is at least initially dependent on additional governmental funds. Under the monopoly pricing and cost recovery models the agencies maintain strong control over the re-use and distribution of data. However, this implies that the producers are the ones best suited to determine how the data could be applied.

Table 1: Pricing models

In Sweden public sector information, such as geological information, is governed by three interacting principles: freedom of information, privacy and cost recovery (Pira, 2000). Cost recovery is a means used by governments to minimise the cost related to public sector information. This is far from the best approach for maximising the economic value of the information, nor is it the best method to finance data products (Weiss, 2002). For instance, access barriers due to charging structures lead to lower demand compared to cases with freely available information.

A challenge facing many geodata agencies is the lack of transparency in implementing key cost recovery practices. POPSIS (2011) found that the calculation bases for determining public sector information (PSI) re-use charges were weak and in some cases the cost setting seems to be oriented towards filling budgetary gaps rather than geared to the cost-oriented tariffs required by the PSI directive. Swedish geodata cooperation has a weak basis for thecurrent price setting model. For instance, the Swedish municipalities are categorised into 9 groups based on population density, geographical area and informational need. Depending on the categories the municipality is charged between 11,489 and 126,778 euros for an annual license on geodata. This is certainly an effort to set third degree price discrimination, yet it is unlikely such prices will accommodate the consumer and promote further information dissemination. Such charging strategies will also result in circular payments among government entities and may lead to use of inferior alternatives due to budget constraints. The cost of geodata may result in agencies ignoring available information and instead creating their own, manipulating or degrading the data to avoid licensing restrictions. This in turn could imply increased internal expenses and create long-term integration issues.

The elasticity of demand indicates how a change in the price of the product will lead to a change in the quantity demanded. Geological information has a high price elasticity, which further supports marginal cost pricing. High elasticity suggests that cost recovery pricing will lead to large distortions. For instance, the early attempt by the USGS to increase its cost-recovery levels in the 1980s by increasing the price of digital maps led to a precipitous drop in demand. The return to initial price levels was not enough and the market took some years to recover to initial levels (Weiss, 2002). Since the Landsat data were made freely available in 2008 the numbers of demanded maps sky rocketed, from 38 to 5700 scenes a day (NGAC, 2012). The downstream effects of the Landsat data being available cannot be overstated and has set an example for data accessibility to be adopted by other governmental agencies. Pira (2000) finds that a conservative projection of a doubling in market size resulting from eliminating license fees would produce additional taxation revenues to more than offset the lost income from public sector information charges.

The European Directive on the re-use of public sector information (2009/98/EC) aims at facilitating re-use by harmonising the relevant conditions across the European Union and removing unnecessary barriers to re-use in the internal market. The provision on charging for public sector information (PSI) was one of the most contested elements of the directive. The revised version of the directive (2013/37/EU) suggested movement towards limiting the ability of governmental bodies to charge more than marginal costs of information. However, in the end the revised version still provides exceptions for governmental bodies that are required to cover a substantial part of the cost from revenues. This suggest that those currently under cost recovery structures can unfortunately continue charging for their information.  The current pricing regime is also likely to create a barrier to usage in itself due to perceptions within the municipalities charged with a high license fee, given that potential gains from including the information in their land use planning are neither immediate nor certain.

Regardless of regional differences, there is a trend in Europe towards lowering charges and/or facilitating further re-use of geospatial data (de Vries, 2012). This could be due to the growing body of literature which suggests that changing from cost recovering or monopoly pricing to marginal cost models has beneficial impacts on both the society (e.g. employment, economic growth) and also the information sector due to the increased market. While some governments are willing to support the transformation towards marginal charges, the power to perform such changes is not always as prevailing, given the potential need of temporarily increased funding. In addition, current re-users may have interests in preserving the current cost scheme to keep entry barriers high and thus reduce competition.

It could be argued that if additional governmental funding is not met when transitioning from cost recovery to marginal prices, there may be deterioration in the data quality over time, implying that the benefits of the data would decrease. While the value of most information degrades over time, the value of geological data is likely to remain stable in the case of land use management, since the information often include long time series. Cases from the information field suggest that intensified ties with re-users may instead lead to improved data quality and process efficiency. This assumes that deficiencies in the data are flagged by users, suggesting that when the interest in quality is shared the control is also partly shared (POPSIS, 2011).

Value-added products

An important public policy issue is whether governmental agencies, primarily funded by the taxpayers, should produce value-added products that compete with the private sector. Weiss (2002) gives an example on how degraded data was sold to private sector weather services at a lower quality than the data used in the public service’s own operations. By doing so, the governmental agencies create unfair competition through unnecessary modifications. The solution to this issue in several countries has been to separate and privatise the commercial part of their operations, which does not solve the problem of them having a dominant position in the market.  High prices for information may lead to predatory practices and the creation of government-owned corporations may serve to exclude others from the market. This approach suggests movement towards an open data policy, since the spin-off commercial companies will need to fend for themselves against competition, and the only way to guarantee a “level playing field” is through an open data policy.

We agree with the literature suggesting that levelling the field without unfair competition and cross-subsidisation may be impossible in the case of governmental agencies providing commercial services. Commercial information services should only be provided by the governmental agencies when there is a public need for such services, no private company is already providing that service, and it is deemed unlikely that any private firms aim to pursue it in the near future.

Opportunities for information dissemination

The role of any government in making collected information available is a policy issue. The current trend is moving away from the essence of the British “Rayner doctrine”, where it was assumed that if you need data you will pay for them and otherwise you do not need them (Blakemore and Craglia, 2006). Nowadays, the discussion is more often on how to encourage using additional information sources. However, missing in such discussions is the encouragement of additional users, i.e., aiming for broader diffusion of the information. A “build it and they will come” mentality has been prevailing in the literature, suggesting that if only the data are released anyone can use them. This is highly unlikely, as the threshold of understanding geological information implies a learning-by-using cost, which is non-negligible. More normative research claims that making data accessible to a broad public would in itself be a substantial task, but for the public to embrace the openness, the data needs to be usable by all, not only made available to all. The data framework should therefore ensure that user-friendly settings are provided and that the end customer only pays a marginal cost for the use of data. This will minimise the initial opportunity cost of trying the information.

Over the last decade there has been a significant increase in the geoinformation available to support land use planning. While there is a growing body of literature on user-generated geodata, the same investments have not yet been made for geological information. If initial data were available freely, this could spur additional user- generated content, which – given that many users might contribute – also opens up the possibility that the maps may be kept more up to date. However, for the case of land use management there is a need for consistency and the validation of results is needed. Investing in structures that enable user contributions has the potential to lower the cost of such information in the long term.  Moreover, increased availability of land user data could enhance participation and democracy as it can facilitate communication (Blakemore and Craglia, 2006). By providing actors with symmetric information concerning land use, it would be possible to further minimise the risk of conflict, as the interested parties can participate in the process.

Concluding remarks

Due to some of the fundamental economic characteristics of information (e.g. high elasticity of demand, non-rival consumption) it should be questioned whether governmental agencies producing geodata can successfully raise enough revenue to pay not only for the dissemination of its information but also for the costs associated with creating such information. Charging a marginal cost of dissemination for geological information has the potential of creating economic growth that could outweigh the immediate perceived benefits of aggressive cost recovery. Open data does not rest on new technological advancements but rather is seen as raw material for new products. Accessible geological information can contribute to sustainable land use development. By optimal use of geological information it is possible to create a good living environment, facilitate economic development and contribute to the sustainable management of natural resources.

Knowledge gained from using geological information can be considered as augmented by use if the cost of learning is not considered too high. We therefore argue that core geological map data should be licensed at low cost to encourage use, standardisation and consistency among all user groups. The example of the Landsat data confirms the high elasticity of demand for geological information and showcases how data accessibility can be adopted by other governmental agencies.

References

Bannister, F., and Connolly, R. (2011) The trouble with transparency: A critical review of openness in e-government, Policy & Internet, 3(1), 1-30.  DOI: 10.2202/1944-2866.1076.

Blakemore, M. and Craglia, M. (2006) Access to public-sector information in Europe: Policy, rights, and obligations, The Information Society, 22(1), pp. 13-24. DOI: 10.1080/01972240500388180

de Vries, M. (2012) Charging for PSI re-use: A snap shot of the state of affairs in Europe, Topic Report No. 2012/9 European Public Sector Information Platform.

European Directive on the re-use of public sector information (2009/98/EC)

European Directive on the re-use of public sector information (2013/37/EU)

NGAC (2012) Landsat Advisory Group Statement on Landsat Data Use and Charges, U.S. National Geospatial Advisory Committee, https://www.fgdc.gov/ngac/meetings/september-2012/ngac-landsat-cost-recovery-paper-FINAL.pdf

Pira International (2000) Commercial Exploitation of Europe’s Public Sector Information. Report for the European Commission, Directorate General for the Information Society.

POPSIS (2011) Pricing of Public Sector Information Study: Models of Supply and Charging for Public Sector Information (ABC). Report for the European Commission, Information Society and Media Directorate-General.

Weiss, P. (2002) Borders in Cyberspace: Conflicting Government Information Policies and Their Economic Impacts. Summary report. U. S. Department of Commerce, National Oceanic and Atmospheric Administration, National Weather Service. http://www.nws.noaa.gov/sp/Borders_report.pdf

This article has been published in European Geologist Journal 41 – Sustainable land use: How geology can contribute.