Two ecomonists - Boldrin and Levine - have come up with a controversial idea that copyright and patent protection may actually be harmful for the innovator as well as society at large. The paper, called "Perfectly Competitive Innovation" is long dense and thought provoking. I have yet to read it fully, let alone fully digest it. However there is a commentary on it here which discusses both the paper and the responses to it, which seems to provide an excellent summary. I hope to come up with more topical thought later but in the meantime I offer this thought:
I think that most (all?) of the debate on IP - and indeed the above commentary - found misses one big thing: why innovation occurs. I'm still thinking about this but it seems obvious to me that there are two distinct forms of innovation.
The first is the innovation required to solve a perceived need. This is where cures for diseases come in, along with all sorts of other things from computer programs to wheels. For these sorts of innovative effort the Boldrin and Levine argument is fine. If I have a need of something to reduce my expenditure I will be willing to invest sufficient money to fix that need as long as it is less than the eventual reduction in expenditure (plus/minus interest rates, inflation etc etc). So, for example, if an HMO wants to cut its cost of treating a disease it will be willng to pay for the development of a drug that cures the disease quicker and faster. The 90% of computer software that is written but not sold generally falls under this umbrella. This is all classic return on investment stuff.
The second type of innovation is the creation of new markets by making something that no one has ever seen before and that doesn't solve a need. Here I think its a bit trickier, because you have to grow the market AND that takes time. Hence it may well be that you need some kind of protection because otherwise as soon as the market tornadoes you have no protection against imitators coming in and copying the product. Since they don't have to recover the fixed costs in developing the product and building the market they can sell for a lot less than you can. But it may well be that you can still sell for a premium because of branding so it is not neccessarily the case that you will see no benefit from originating the market - "The original and still the best" is quite a common slogan in all sorts of commodity based markets.
DD
I think that most (all?) of the debate on IP - and indeed the above commentary - found misses one big thing: why innovation occurs. I'm still thinking about this but it seems obvious to me that there are two distinct forms of innovation.
The first is the innovation required to solve a perceived need. This is where cures for diseases come in, along with all sorts of other things from computer programs to wheels. For these sorts of innovative effort the Boldrin and Levine argument is fine. If I have a need of something to reduce my expenditure I will be willing to invest sufficient money to fix that need as long as it is less than the eventual reduction in expenditure (plus/minus interest rates, inflation etc etc). So, for example, if an HMO wants to cut its cost of treating a disease it will be willng to pay for the development of a drug that cures the disease quicker and faster. The 90% of computer software that is written but not sold generally falls under this umbrella. This is all classic return on investment stuff.
The second type of innovation is the creation of new markets by making something that no one has ever seen before and that doesn't solve a need. Here I think its a bit trickier, because you have to grow the market AND that takes time. Hence it may well be that you need some kind of protection because otherwise as soon as the market tornadoes you have no protection against imitators coming in and copying the product. Since they don't have to recover the fixed costs in developing the product and building the market they can sell for a lot less than you can. But it may well be that you can still sell for a premium because of branding so it is not neccessarily the case that you will see no benefit from originating the market - "The original and still the best" is quite a common slogan in all sorts of commodity based markets.
DD
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