Patents and copyrights: do the benefits exceed the costs?

Paper (pdf) by Julio H. Cole (converted web version), via Stephen Kinsella on Napster and the legitimacy of copyright laws.

 

In short, it is not as clear as it seems. Aside from the question of whether intellectual property is really property in the traditional sense (scarce, rivalrous good), the paper brings up some interesting historical debates and a cost/benefit analysis.

Benefits:

  • Patents contribute to some technological innovation (but studies show not much compared to other factors)
  • Inventors have additional incentives to invent (but studies show not that much)
  • Inventors receive monopoly power and royalties when copyright/patent is applicable and enforceable
  • Work for lawyers 😉

Costs:

  • Management and enforcement cost
  • Monopoly effect hinders progress, as inventors have to pay or design around existing patents
  • Slower innovation, as inventors have less incentives to continuous innovation to keep competitive advantage
  • Distorted incentives to design for patenting, which hurts innovation in valuable but less patentable areas

 

In the case of copyrights, there is an interesting and unique cost: authors have incentives to create lower quality content. It is a subtle argument: as a publisher, if you don’t know which book is going to be big, but the pay-off is bigger for success (other things being equal), then you want to publish more titles (buy more lottery tickets), as opposed to fewer/better books.

 

Stephen provides a comprehensive case against IP. Ditto for Michele Boldrin and David K. Levine in Against Intellectual Monopoly.

 

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