Everything in this page is joint work with David K. Levine (Washington University of St. Louis, Economics Department). For more policy oriented stuff on Intellectual Property, also joint with DKL, go to the Public Policy Page.
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.
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.
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.
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.
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.
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.
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.
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.
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 ...