FORTHCOMING
Copy Right: Against Intellectual Monopoly (Book)
Competitive Innovation and Industrial Organization
The Long-run Social Cost of Intellectual Property
IP and Market
Size NEW!
Mimeo. First version June 2004, this version March 2005.
Intellectual
property protection involves a tradeoff between the undesirability of
monopoly and the desirable encouragement of creation and innovation. As
the scale of the market increases, due either to economic and population
growth, or the expansion of trade through treaties such as theWorld
Trade Organization, this tradeoff changes. We show that, generally
speaking, the socially optimal amount of protection decreases as the
scale of the market increases. We also provide simple empirical
estimates of how much it should decrease.
PDF file
Intellectual
Property and the Efficient Allocation of Surplus from Creation NEW!
Review of Economic Research in Copyright
Issues, 2 (2005), 45-67.
In the modern theory of innovation,
monopoly plays a crucial role both as a cause and an effect of creative
economic activity. Innovative firms, it is argued, would have
insufficient incentive to innovate should the prospect of monopoly
power not be present. This theme of monopoly runs throughout the theory
of growth, international trade, and industrial organization. We argue
that monopoly is neither needed for, nor a necessary consequence of
innovation. In particular, intellectual property is not necessary for,
and may hurt more than help, innovation and growth. We show that, in
most circumstances, competitive rents allow creative individuls to
appropriate a large enough share of the social surplus generated by
their innovations to compensate for their opportunity cost. We also
show that, as the number of pre-existing and IP protected ideas needed
for an innovation increases, the equilibrium outcome under the IP
regime is one of decreasing probability of innovation, while this is
not the case without IP. Finally, we provide various examples of how
competitive markets for innovative products would work in the absence
of IP and critically discuss a number of common fallacies in the
previous literature.
PDF File
The Economics of Ideas and Intellectual Property NEW!
Proceedings of the
National Academy of Sciences, 102 (2005), 1252-1256.
Innovation and the adoption of new ideas is
fundamental to economic progress. Here we examine the underlying
economics of the market for ideas. From a positive perspective, we
examine how
such markets function with and without government intervention. From a
normative perspective, we examine the pitfalls of existing institutions,
and how they might be improved. We highlight recent research by us and
others challenging the notion that government awards of monopoly
through patents and copyright are ‘‘the way’’ to provide appropriate
incentives for innovation.
PDF
file
Rent-Seeking and Innovation
Journal of Monetary
Economics, 51 (2004), 127-160.
Innovations and
their adoption are the keys to growth and development. Innovations are
less socially useful, but more profitable for the innovator, when they
are adopted slowly and the innovator remains a monopolist. For this
reason, rent-seeking, both public and private, plays an important role
in determining the social usefulness of innovations. This paper examines
the political economy of intellectual property, analyzing the trade-off
between private and public rent-seeking. While it is true in principle
that public rent-seeking may be a substitute for private rent-seeking,
it is not true that this results always either in less private
rent-seeking or in a welfare improvement. When the public sector itself
is selfish and behaves rationally, we may experience the worse of public
and private rent-seeking together.
PDF file
The
Lawrence Klein Lecture. The Case Against Intellectual
Monopoly
International Economic
Review, 45 (2004), 327-350.
In the modern theory of
growth, monopoly plays a crucial role both as a cause and an effect of
innovation. Innovative firms, it is argued, would have insufficient
incentive to innovate should the prospect of monopoly power not be
present. This theme of monopoly runs throughout the theory of growth,
international trade, and industrial organization. We argue that monopoly
is neither needed for, nor a necessary consequence of innovation. In
particular, intellectual property is not necessary for, and may hurt
more than help, innovation and growth. We argue that, as a practical
matter, it is more likely to hurt.
PDF file
The Case Against
Intellectual Property
American
Economic Review, Papers and Proceedings, 92 (2002), 209-212.
We summarize
here the main results from Perfectly Competitive Innovation, together
with a number of other results (specific to this paper) showing that,
even when the production of ideas only involve a fixed cost and zero
marginal costs of making copies (a set up where competitive markets
cannot, by assumption, lead to the production of innovation) copyright
and patents distort incentives in such a way that, at the associated
monopolistic equilibrium one achieves what we label as the "Pareto
Worst" outcome.
PDF file
Longer version
Factor Saving
Innovation
Journal of Economic Theory, 105 (2002), 18-41
| "The real
reason for the predominance of labor saving inventions is surely that ... a change in the relative
prices of the factors of production is itself a spur to
innovation and to inventions of a particular kind -- directed at economizing
the use of a factor which has become relatively expensive.'' |
| -J.R.Hicks,
"Theory of Wages", (1932), pp. 124-125 |
We study a simple model of
labor saving technological improvements in a concave
framework. Capital can be used either to reproduce
itself, or, at some additional cost, to produce a
higher quality of capital, that requires less labor input to produce
consumption. Our model provides dynamic microfoundations to the notion
of "factor biased innovations" put forward by Hicks,
and criticized by many. If better quality capital is
relatively costly to produce, the process of growth is necessarily
uneven, exhibiting a natural cycle with periods of ``growth recession.''
Growth paths and technological innovations also exhibit dependence upon
initial conditions. The model provides a step toward a theory of
endogenous Total Factor Productivity.
PDF file
Perfectly
Competitive Innovation
First
Version: October 3, 1997, This Version: Jan 17, 2003.
We construct a competitive
model of innovation and growth under constantreturns to scale. Previous
models of growth under constant returns cannot model technological
innovation. Current models of endogenous innovation rely on the
interplay between increasing returns and monopolistic markets. We argue
that ideas have value only insofar as they are embodied in goods or
people, and that there is no economic justification for the common
assumption that ideas are transmitted through costless “spillovers.” In
the absence of unpriced spillovers, we argue that competitive
equilibrium without copyrights and patents fails to attain the first
best only because ideas are indivisible, not because of increasing
returns. Moreover, while it may be that indivisibility results in
socially valuable ideas failing to be produced, when new ideas are
built on old ideas, government grants of intellectual monopoly may lead
to even less innovation than under competition. The theory of the
competitive provision of innovations we build is important both for
understanding why in many current and historical markets there has been
thriving innovation in the absence of copyrights and patents, and also
for understanding why, in the presence of the rent-seeking behavior
induced by government grants of monopoly, intellectual property in the
form of copyrights and patents may be socially undesirable.
PDF file
Submitted
to the Journal of Political Economy in December 2001 ... February
2005: Rejected
Apparently, the result is well known and not original
at all.
Apparently, it does not have
general applicability.
Apparently, our innovators have
monopoly power, and we had not realized it.
Apparently, it is based on absurd
hypotheses, and it lacks empirical relevance: competitive innovations
do not exist.
Apparently, everyone already knew the
theory of competitive innovation since long ago.
Apparently, it had just "slipped" the attention of people working in this area.
Apparently, the model is "a bit special" ... apparently ...
