RFF Value of Information Workshop Report Released
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The Value of Information: Methodological Frontier and New Applications for Realizing Social Benefit
by Molly Macauley and Ramanan Laxminarayan, Resources for the Future, Published August 2010
This report highlights the major conclusions and outcomes from a workshop held June 28–29, 2010 at Resources for the Future in Washington, DC, on methodological frontiers and new applications of valuing information and its social benefit. The participants provided answers to a series of questions: What is meant by “value of information”? When does information have value? What are state-of-the-practice methods to ascribe value to information? Participants also identified steps to ascribe, measure, and communicate value.
The workshop was distinctive in serving as the first multi-day, in-depth meeting to convene experts in the two disparate communities of social science and Earth science to identify and critique state-of-the-practice methods for ascribing value and societal benefit to information. The workshop outputs include specific recommendations and actions to enhance and further demonstrate the value of information from public investments, particularly those in Earth science applications.
A main finding is that investment in Earth observations confers many benefits but a lack of tools and resources has caused these benefits to be less well measured and communicated than warranted. The report includes suggestions attendees offered as next steps to enhance modeling, evaluation, and communication of the array of benefits.
Report PDF can be found at: http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=21266
Interestingly, one participant of the workshop remarked on “the difference between public and private sector perspectives. In the public sector (and academia), the primary questions seem to concern the overall value of information. To be useful in the private sector, such questions must be augmented by knowledge of how that value is allocated throughout the supplier-customer chain.”
For commentary by one of the workshop’s steering committee members, Bill Hooke, visit his blog posting Knowing What the Earth Will Do Next? Priceless.
**Also, check out the comment posted by Bill Gail, another workshop steering committee member, by clicking the comment link right under the title at the very top of the post.
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The public versus private perspective is often overlooked, yet it is of critical importance in determining whether information’s value is realized.
Consider the case of wind energy generation. Wind farms are widely believed to suffer a 20% efficiency loss due to poor forecasts for winds at the 80m hub height – a multi-billion dollar problem. In the US (and similarly elsewhere), the government provides basic forecasts, but these are generally at locations different from the wind farm and at atmospheric levels not well-matched to hub height.
Given the financial incentives, the players in wind energy production have sought private sector offerings that improve on government forecasts. But the private sector opportunity is far less than the multi-billion savings potential. The commercial market opportunity is squeezed from the top and bottom. From the bottom, free government forecasts provide some capability; money can be made only by improving on these. From the top, utilities have substantial government regulation; savings due to forecasts are expected by regulators to accrue largely to ratepayers rather than to the private sector.
The value of the information is clearly in the billions – if appropriate forecasts were available. But market incentives to create such forecasts are poorly aligned with the information’s value. With most of the value being returned to rateholders, the motivation for improvement is driven by slower-moving public regulatory agencies rather than faster-moving commercial markets.
The overall information value may be independent of this process, but the ability to realize it through actual forecasts that improve operating efficiency depends heavily on this public-private balance and the relative allocation of value in the customer-supplier chain.