Economics of intellectual property   no comments

Posted at 12:24 pm in Uncategorized

In my last post I talked about how economics is necessary because of the scarcity of goods. What is interesting in looking at the economics of intellectual property is that intellectual goods aren’t scarce in the way that other goods are. So does that mean we don’t actually need economics when it comes to intellectual goods?

In short, the answer is no. Even though intellectual goods aren’t scarce like land or labour, they are made artificially scarce through government policy. This creates a market for them.

To see why intellectual goods aren’t scarce, consider this quote from Benjamin Franklin (17??)

“If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it.

Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.”

Thomas Jefferson, letter to Isaac McPherson, 13 August 1813

An important difference between intellectual property and non-intellectual property (such as money, houses or land) is that the former tend to be what economists call non-rival while the latter tend to be rival. A rival good cannot be used by one without diminishing the ability of another to use it. My consumption of a pizza prevents you from consuming the same pizza. My use of an idea, a design or technique, on the other hand, does not diminish your ability to use that same idea (so long as in implementing the idea I do not use up the only resources available to implement that idea). We can both use the idea of a pizza to make our own individual pizzas without interfering with each other. Such intellectual goods are non-rival – they can be enjoyed by more than one person at the same time without losing value.

This difference is not absolute, however. Some non-intellectual goods are non-rival. Traditional public goods, such as clean air, are non-rival, but they are certainly not intellectual goods. However, most goods that are traditionally the objects of property rights, (money, houses, land) are rival. Similar qualifications apply to intellectual goods, which can sometimes be rival in certain ways. We might call them non-rival in consumption; your ability to consume an intellectual good is not affected by my consuming the same intellectual good. However, your ability to use the good in other ways may be affected by my use of it. My ability to profit from stockmarket tips (which I would classify as intellectual goods) depends on how many other people are using the same tips. My ability to profit from selling you a book depends on whether or not you have already read it.  More generally, the ability to profit from an intellectual good is compromised if others are able to consume it for free. However, with these qualifications in mind, two generalisations can be made. Intellectual goods tend to be non-rival, at least in consumption. In contrast, the kind of non-intellectual goods that are typically the objects of property rights – houses, land, vegetables – are rival.

A popular defence of intellectual property takes the maximisation of innovation as the relevant end. This version is assumed in the economic literature and reflected in the wording of United States law on intellectual property:

“to Promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

Another kind of defence takes the protection of individual creator’s rights as the most important thing an intellectual property regime exists to do. According to this view, people have the right to control the things they create with their mind. This includes preventing others from using their ideas.

Written by rb5g11 on November 28th, 2011

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