The evolution of control in the digital economy

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.