Arnold Kling  

Glaeser on Coercion and Contracts

Wading Through Schumpeter... The Effects of Disability Regs...

Edward Glaeser writes,

there are cases where freedom to contract is and should be imperfect. For example, many contracts rely on expensive government enforcement, and it is reasonable to set limits on the scope of government action in this, as in every, setting. An employment contract with a lifetime non-compete clause, for example, relies on governmental agents enforcing a prohibition against a worker for decades.

It is also costly for the government to enforce intellectual property protection, particularly overseas. Does that mean that the scope of government in this area ought to be limited?

In practice, something like a non-compete agreement is going to be enforced primarily by the firm that wrote the agreement. The only thing that government has to do is provide a court to resolve any disputes. (Maybe the same is true for intellectual property.)

Even if a contract imposes large burdens on the court system, it is not clear that this is inefficient. One can imagine the contracting parties paying for court costs, in which case it is no imposition on the rest of us.

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CATEGORIES: Economic Philosophy

COMMENTS (8 to date)
Doug Chartier writes:

And, of course, there are always private avenues of adjudication - such as arbitration - for which court costs at the confirmation stage are greatly reduced.

Pedro Bento writes:

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Laurent GUERBY writes:

Intellectual Property is a huge burden to society because it restricts individual freedom and in particular it restrict free trade (the real "free" trade). It is one of the most potent protectionnist measure, and one of the biggest government intervention in the otherwise free market.

Is this a pro-free-trade blog?

To quote a famous economist:

Just to illustrate how great out ignorance of the optimum forms of delimitation of various rights remains - despite our confidence in the indispensability of the general institution of several property - a few remarks about one particuilar form of property may be made. [...]

The difference between these and other kinds of property rights is this: while ownership of material goods guides the user of scarce means to their most important uses, in the case of immaterial goods such as literary productions and technological inventions the ability to produce them is also limited, yet once they have come into existence, they can be indefinitely multiplied and can be made scarce only by law in order to create an inducement to produce such ideas. Yet it is not obvious that such forced scarcity is the most effective way to stimulate the human creative process. I doubt whether there exists a single great work of literature which we would not possess had the author been unable to obtain an exclusive copyright for it; it seems to me that the case for copyright must rest almost entirely on the circumstance that such exceedingly useful works as encyclopaedias, dictionaries, textbooks and other works of reference could not be produced if, once they existed, they could freely be reproduced.

Similarly, recurrent re-examinations of the problem have not demonstrated that the obtainability of patents of invention actually enhances the flow of new technical knowledge rather than leading to wasteful concentration of research on problems whose solution in the near future can be foreseen and where, in consequence of the law, anyone who hits upon a solution a moment before the next gains the right to its exclusive use for a prolonged period.

The Fatal Conceit: The Errors of Socialism, 1988 (p. 35) Friedrich von Hayek

Thomas writes:

" is not obvious that such forced scarcity is the most effective way to stimulate the human creative process."


Fame is a very powerful incentive for the production of creative works, and it remains hard at work. There are currently hundreds of thousands of bands on mySpace, the Internet is glutted with bands giving away free tracks. How many do we lose if we were to cut the financial incentives for creative property to something like creation + 5 years?

The strong IP advocate might argue we lose the best of the bunch first, but when popularity is random, how can we be so sure?

Laurent GUERBY writes:

Thomas, if you don't already know it there is a complete book online full of examples and historical references on the topic.

I find it really funny to see serious looking economics blogger scream continuously at tariffs, regulations, governement intervention everywhere.

... But be either completely silent (I'm confident there will never be any answer to my comments on this blog) or big fans of intellectual property.

jp writes:

Arnold -- You're exactly right about the costs of enforcement. Indeed, Glaeser's example is so inapt that I'm kind of shocked that he wrote it.

The high costs of enforcement -- borne, as you point out, almost entirely by the litigants themselves -- ensure that inefficient enforcement will be rare. To the extent that IP law generally is inefficient, it's not because of the costs the state bears in providing courts and sheriffs.

Bill writes:

One would have to be starving, stupid, incredibly high paid, or guaranteed lifetime employment to sign a lifetime non-compete clause.

Lex Spoon writes:

The price of enforcement for intellectual property is an argument against it. The difficulty of enforcement is getting higher as time goes on, and so correspondingly intellectual property ought to get weaker.

Software patents should go immediately. Digital copyright ought to be weakened.

I write more here.

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