Saturday, 22 August 2009

Protection of intellectual property should be decreasing, not increasing

It is obvious that the length and reach of intellectual protection keeps expanding. We see copyright periods lengthen, the scope of patentable "innovations" widens, and the enforcement of intellectual property become the topic of international trade negotiations. Is this to the good?

The Economic Logic blog points us to research that suggests not. They write,
Michele Boldrin and David Levine look at this using the age-old trade-off in intellectual property protection: long protection provides the innovator with monopoly rents and thus incentives to create more innovations, whereas should protection allows society to benefit earlier and more widely of these innovations. As you move the protection duration (or scope or enforcement), the question really is how many new innovations one gains or loses at the margin. The distribution of innovation thus matters a lot as the marginal idea (in terms of quality) will be pursued. Ultimately, you want to measure the elasticity of revenue with respect to the marginal idea.

Boldrin and Levine do this with various empirical strategies that all come to a similar conclusion: the elasticity mentioned above increases a lot with the quality of the marginal idea. Also, they find that the growth rate of ideas is lower that that of population, there are decreasing returns to scale. What this means is that protection for intellectual property should be decreasing with the scale of the market. And as globalization has dramatically increased that scale, protection should be decreasing rather than being reinforced.
The Boldrin and Levine paper is Market Size And Intellectual Property Protection. The abstract reads,
Intellectual property (IP) protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. Optimal policy depends on the relative strength of these two forces. We give a quantitative assessment of current IP policies. We focus particularly on the scale of the market, showing that as it increases, due either to growth or to the expansion of trade, IP protection should be reduced.

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