Arnold Kling  

Intellectual Property

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N. Stephan Kinsella argues against the concept of intellectual property. On the utilitarian argument for intellectual property, he says,


It is debatable whether copyrights and patents really are necessary to encourage the production of creative works and inventions, or that the incremental gains in innovation outweigh the immense costs of an IP system.

On the philosophical argument for intellectual property, he says,

the fundamental social and ethical function of property rights is to prevent interpersonal conflict over scarce resources...ideas are not scarce.
If I invent a technique for harvesting cotton, your harvesting cotton
in this way would not take away the technique from me.

Kinsella makes a point that is very relevant to the debate about music and the Internet.

a system of property rights in “ideal objects” necessarily requires violation of other individual property rights, e.g., to use one’s own tangible property as one sees fit.

Eugene Volokh argues that intellectual property is a valid concept.

Even for the nonrivalrous good, destroying the right to exclude has taken away much of the incentive to invest. It hasn't taken away all the incentive; even destroying all property wouldn't take away all the incentive to invest effort. But it has taken away a lot, likely enough to make society on balance considerably worse off.

In terms of Kinsella's example, the technique to harvest cotton is not a scarce resource, but the effort expended to develop that technique is a scarce resource.

Commenting on Volokh's argument, Daniel Drezner writes,


Before a concept comes into existence, the incentive created by intellectual property rights is very strong. After a concept is invented, critics are correct in saying that society would be better off if those rights were revoked...

Dynamically, society is better off protecting such rights, because that helps to ensure a constant stream of innovation. However, in times of crisis, when the future is heavily discounted, it's very tempting to revoke this commitment.

I think that the best way to think about policy on intellectual property is to think about the appropriate way to reward research effort. My instinct is that the answer will be different for different fields. My instinct is that music copyrights create a huge distortion relative to benefits, while drug patents create a smaller distortion relative to benefits. I still struggle with the many metaphors of intellectual property.

UPDATE. More discussion from Larry Solum. He talks about "club goods." I did not realize such a term existed, although I have long advocated the use of clubs for things like music or software.

For Discussion. In what ways are patents and copyrights inefficient tools for rewarding research effort?


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TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/21
The author at Modulator in a related article titled Late Night Reading writes:
    Terry at Nitpicker thinks that Tucker Carlson might be a "pretty good guy to have a beer with." Stephen Kinsella on Intellectual Property Rights. Via Econlog. (I admit to not finishing the Kinsella piece yet) Good Night! Good Night!... [Tracked on September 15, 2003 1:15 AM]
COMMENTS (16 to date)
Matt Young writes:

I can speak for the software industry. The liberal patent grants for software were incorrect in the traditional patent framework. Many of these patents were simple software implementations of commonly used algorithms.

John Thacker writes:

Similar to what Matt Young says above, patents and copyrights directly reward getting the patent and copyright, not doing the research. This leads to several possible inefficiencies:

1) When the item covered by the patent or copyright is a well-known item to the community at large, or otherwise required a minimum amount of research, it's inefficient, as the costs slmost surely outweigh the benefits. Similar inefficiencies occur with speculative patents sometimes filed on things which don't quite yet exist by people gaming the system.

2) When, under a European-style "first-to-file" patent regime, the patent is merely awarded to whomever filed first, regardless of the inventor, there are inefficiences as this rewards free-riding on others' research, waiting for something to be invented, and then patenting it. This can be even worse than a no-patent regime.

3) When, under a US-style "first-to-invent" patent regime, there is more room for challenge based on prior art and who invented something first, the effort expended to demonstrate the facts in such cases is inefficient.

Tim Swanson writes:

Well, for starters patents/copyrights hurt innovation as they limit who can produce and bring-to-market a good/service.

These both stem from the Labor Theory of Value, a system that I (and many others) believe is invalid. A material good or service is not worth something because of the amount of labor used to produce a widget (a nonsensical labor-o-meter?), but rather the subjective preferences of each individual in the marketplace).

All a patent/copyright does is effectively hamper the market process by erecting barriers to entry adding inefficient layers to the market (not just between businesses, but the State now is enforcing these "promises to protect X" -- and the State has a terrible track record for any economic intervention).

The question that I think should be asked is why does someone deserve something based on the fact that they came up with the idea first? In every other aspect to a free-market, entrepreneurs are the risk-takers that bear all of the consequences and are rewarded accordingly. They do not require assistance from the State in order to achieve success (otherwise it would not have been a "free-market"), and have continually proven that they can succeed without the State.

In turn, what will end up happening, ceteris peribus, as long as the State continues to exist, 100% efficiency and wealth maximization can not only not occur but the Tyranny of Good Intentions takes over with respect to inventions and innovation.

Sure, it would be nice for an inventor to benefit off their invention, but it is their own fault, their own risk for taking the time to try and tinker with a widget, let them bear the costs 100%.

IP is merely another form of subsidized business at the expense of everyone (tax payers fund the racket, consumers are given less choices, businesses can be sued, lawyers are hired...). The law perverted, as Bastiat would say.

John Thacker writes:

Another possible inefficiency is that creators might know that an invention which they create independently might still fall afoul of a granted patent or copyright. In some cases, this might influence people to avoid attempting to research new ideas, for fear that their new idea will be patented by someone else first.

To address the inefficiency of *not* having patents, I concede that inventors can recover a decent amount of value by treating their inventions as trade secrets and starting companies to utilize their inventions. However, this falls afoul of the principle of specialization and, more importantly, could lead to greater idea hoarding, which would hurt the creative process overall. (In the tech industry, for example,

"They do not require assistance from the State in order to achieve success (otherwise it would not have been a "free-market"), and have continually proven that they can succeed without the State."

Balderdash. The State acts to defend and uphold other conceptions of property. Surely the police force engages in "promises to protect X" all the time. Theft is punishable by the state, you know.

You must make a more careful argument than that to be persuasive, Mr. Swanson. Demonstrate why IP and physical property are different, or, if you wish, claim that neither should be protected by the state. Please avoid claims that the State does not currently engage in "promises to protect X," however.

Tim Swanson writes:

Mr. Thacker,

"Balderdash. The State acts to defend and uphold other conceptions of property. Surely the police force engages in "promises to protect X" all the time. Theft is punishable by the state, you know."

But in doing so, the State forces you (plunder even) to pay them money to protect you from individuals and organizations that might force you to pay their own syndicates money (it's a total double-standard).

So say Peter is robbed by Joe. Police officer Paul comes up to Peter and says "you know, you need to pay me, so I can protect you from people like Joe." So now Peter is being robbed by both Joe and Paul.

You're correct, the State does a number of things that are inconsistent with logic, IP is just one of them.


"You must make a more careful argument than that to be persuasive, Mr. Swanson. Demonstrate why IP and physical property are different, or, if you wish, claim that neither should be protected by the state. Please avoid claims that the State does not currently engage in "promises to protect X," however."

But the State does promise to protect X, where X in the above situation was a patent or copyright. I'm not sure where the "not" comes from.

My question is really more fundamental than what we've discussed as it goes down to where "value" is derived. If it comes from an individuals subjective preferences, then I as a consumer, producer, investor, etc. have my own evaluations on what I should exchange my wealth for.

If an inventor is unable to sell his idea without assistance from the State, offhand I would simply consider him a poor businessman, unless Zeus or Keynes was holding him back.

Furthermore, all an "idea" without being put into action and actually created is just a glob of molecules in a persons head. Unless I literally chisel at his skull and steal that grey matter, no theft has taken place. So, yes, I do consider physical property the only kind of property there is. And I would hasten to add that I would not like it "protected" by the State (who's idea of protection is robbing Peter to pay Paul to keep Joe from getting a piece of the action).

Muhammad Asif writes:

Hello sir
I visited ur site and found it very helping.I have a problem and want to ask it from u.I hope u will answer my question.My question is that what does the term "CETERIS PERIBUS"mean.
I will be very thankful to u for this act of kindness.Thanks.

Hi, Muhammad.

You asked:

My question is that what does the term "CETERIS PERIBUS"mean.

Ceteris paribus (it's spelled with an "a") is Latin for "other things equal." In economics, it means to hold all the other variables constant so you can sort out one influence at a time.

For example, if an economist is talking about the effect of unexpectedly increasing the money supply on employment, he might say "Ceteris paribus, an unexpected increase in the money supply in the United States between now and the Presidential election would cause a temporary increase in employment." He is saying that, other things (like the stock market, terrorist attacks, etc.) equal, employment can be expected to increase. If those other things change, too, then employment could, of course, decrease (or increase more than even he predicts if they happen to reinforce the monetary effect).

Tallat writes:

Respectable Sir ,
i found your site by searching on google.com .I found it very very helpful.
sir i have a question

What does equilibrium mean in economics? How can we Illustrate the situation of shortage and surplus in context of equilibrium sir please point with the help of a graph.

Hi, Tallat.

You asked:

What does equilibrium mean in economics? How can we Illustrate the situation of shortage and surplus in context of equilibrium sir please point with the help of a graph.

An equilibrium is a resting point--a point where all forces balance out. The great economist John Bates Clark described it best: it is a point where motion ceases not because of friction, but because all the forces perfectly cancel each other out. (Par. VI.5 in The Distribution of Wealth.)

A good online discussion with graphs can be found in Chapter 7 of David Friedman's Price Theory. Shortages and surpluses are illustrated in Chapter 17. I recommend the book highly!

Abrar writes:

1. What does equilibrium mean in economics? Illustrate the situation of shortage and surplus in context of equilibrium point with the help of a graph.

Abrar writes:

3. Explain Production Possibility Frontier. What is its shape in case of perfect substitutes?

Hi, Abrar.

You've asked two questions:

1. What does equilibrium mean in economics? Illustrate the situation of shortage and surplus in context of equilibrium point with the help of a graph.

I answered this and gave several online links in my response to Tallat's question in my previous post: http://econlog.econlib.org/archives/000245.html#005835

You are asking the identical question again. Did you read those suggestions? If those suggestions weren't clear, I'll be happy to address a more detailed question.

You next ask:

3. Explain Production Possibility Frontier. What is its shape in case of perfect substitutes?

Abrar, your questions are sounding a whole lot like you are asking us to do a homework assignment or final exam for you. Right?

If you get started yourself and then describe your question in your own words, I'll be happy to help you move forward. Is your problem that you do not know what the production possibilities frontier is, or that you do not know what perfect substitutes are? Or something else?

Online material on the production possibilities frontier can be found in Chapter 6 of David Friedman's Price Theory and specifically in:

Chapter 6, Simple Trade

Addendum: Further re-posts of these identical exam questions will be treated as spam and deleted.--LFL

Ahmad writes:

Differentiate between Cardinal and Ordinal measurement of utility. Explain also the shortcomings of Indifference curve analysis briefly?

Ali writes:

How can consumer attain optimum level of consumption in Cardinal Approach in case of:

a. One good consumed.
b. More than one good consumed

Ali/Ahmad/Abrar:

You can find the answers to all your questions on cardinal versus ordinal utility in Paul Samuelson's "The Numerical Representation of Ordered Classifications and the Concept of Utility," The Review of Economic Studies, October 1938.

I'm sure this paper will help you with your exam questions and impress your teacher!

Ahmad writes:

Discuss the profit maximization of a firm in Short Run, under Perfect Competition, with the help of Marginal Revenue and Marginal Cost Approach to examine the following cases:

a) When a firm enjoys Super Normal Profit.
b) When a firm realizes Normal Profit.
c) When a firm faces Losses.

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