ECON: Intellectual Property Again

Daniel Fabulich (
Thu, 21 May 1998 04:29:38 -0400 (EDT)

On Wed, 20 May 1998, Michael Lorrey wrote:

> But they wouldn't be getting paid fairly for it. This is about as logical as a
> manufacturer only getting paid for some of the product he makes, i.e. not somthing
> which should be legislated or forced on someone. Product for which a manufacturer
> is not paid, and which he does not willingly donate to charity or give away is

<irony>Durrh. Huh?</irony>

Information is not a product, nor can it be treated as same. The
provision of information is a service, not a sale of consumable goods.
Your position is like saying that if I light a fire, and then sell you
some, and then you give/sell fire to your friends, you've stolen my fire.

Similarly, your argument that intellectual property is stolen when copied
is valid but unsound; as you should already realize, I am opposed to the
premise that the right of other people to make copies of a piece of
information could be lawfully owned. Also, with respect to coercion, if
there were no intellectual prpoerty rights, then an inventor who knew this
and created a product anyway must necessarily be aware of the fact that
his transaction has positive externalities. If the inventor created
anyway, then the action is voluntary; the inventor accepts the fact that
other people would benefit from his/her work. This is simply stating the
trivial fact that if there were no property, there would be no "theft," in
the technical sense. This is not a valid reason to eliminate property,
however. Indeed, I maintain that we should enforce property rights in
such a way as to maximize economic efficiency. For example, take a look

Which is chapter 43 of David Friednman's _Machinery of Freedom_, arguing
for the enforcement of only economically efficient property rights. I
intend to argue that intellectual property rights are NOT economically
efficent, and for that reason should not be enforced as law.

As Friedman notes, the Coase theorem states that if transaction costs are
zero, externalities will be handled efficiently; that is, in this case, if
transaction costs were zero, the inventor could simply say "OK, world.
I've got my idea. I'll tell everyone who wants to make a product with it,
all at once, if you all pay me your fair share in doing so." Clearly this
cannot happen due to the fact that transaction costs are high; trying to
arrange such a bargain would be particularly difficult, especially
considering that you would have to provide provisions to correct for those
who would hold out on the deal, cheat, etc.

In reality, one of two things might happen: either we might enforce
intellectual property, and as a result pay the high cost of trying to
enforce these laws (especially high over the Internet, where copying is
easy, anonymity cheap and encryption ubiquitious) as well as the
deadweight loss resulting from monopoly, or we should suffer
inefficiencies as inventors are not paid quite as much as they are worth
to society, resulting in a naturally lower price for invention, and thus
some deadweight loss as inventors produce fewer inventions than they
otherwise would.

Now, if we accept an economic analysis of law, then the question we should
be asking ourselves is: what form of intellectual property rights, if any,
is economically efficient? I say that enforcing intellectual property
rights is more expensive than it is worth; while both result in deadweight
losses, if we presume that the supply curve for COPIES of the information
(or products produced using the idea) would be fairly elastic, a
reasonable presumption considering the ease of copying these days, the
halving of marginal revenues for monopolies would result in drastic
reductions in quantity, by up to 50% as the supply curve approaches total
elasticity. Chances are something closer to 40% of the market is lost
thanks to monopolization. And this doesn't yet consider the cost of

On the other hand, without intellectual property, these enforcement costs
would vanish; the only deadweight loss would be that from undervalued
invention. While it is difficult to estimate precisely HOW undervalued
the price would be, as it would depend on the percentage of the
marketplace with which inventors would be able to sign a contract, it is
not immediately apparent that the inventor faces either a high or a low
elasticity in supply of ideas; I'd guess that it is probably not so
inelastic as the supply of copies is elastic. Even if I am not precisely
right on this point, however, intellectual property is still not worth
enforcing if the deadweight loss due to undervaluing invention MINUS the
cost of enforcing intellectual property (a non-trivial value) is less than
the deadweight loss due to monopolization. That is, even if the cost of
undervaluing inventions were greater than the cots of monoplization, it
still wouldn't necessarily be efficent to enforce intellectual property
because you would have to add on the cost of actually ENFORCING the law.

In this case, I don't think it's possible to make a reasonable case that
enforcing intellectual property rights eliminates more economic deadweight
loss than it costs, especially considering that it very likely ADDS to
economic inefficiency rather than reduces it, even if the cost of
enforcement were free. I am anxious to see how or if you can show me to
be wrong.

> Also, you are still ignoring my question as to why I or anyone should invent
> something to benefit others without our say so as to who can benefit freely from it
> and who pays. Anything less is theft.

Theft does not exist where property rights do not exist. In the same way,
a feudal lord is not breaking the law when he exploits his serfs;
rather he defines the law in such a way as to make his actions legal. I
agree that his actions SHOULD be illegal, but not because it's theft, but
because rigged laws are economically inefficient, and thus fail to maxmize
utility. In contrast, I argue that intellectual property should not be
enforced, because doing so is not ecnomically efficent, and therefore
fails to maximize utility.

> All you are doing is akin to an attempt to legislate PI to equal 3.

Seems to me that this line could be used by anyone against anyone who
disagrees with them politically. Empty rhetoric, I say; I could just as
well say the same thing to you.

> Get off your
> subjectivist, post modern butt and pay for what you use. No free lunches.

I'm no subjectivist, nor am I politically postmodern. Politically, I am a
libertarian, and I justify my views through utilitarian principles. I
support property rights because they are better for us than socialism, not
because they are objectively morally right. I am also fully prepared to
pay for my choice of property rights in the deadweight loss which would
result from economic inefficiency. Are you prepared to pay the cost of
enforcing a bad law? Or were you looking for that free lunch yourself?