0
Property, Intellectual
Property, and Free Riding
Traditional Commons


The word derives from
the unincorporated
land in and around
towns that everyone
was free to use.

Fa...
Traditional Commons




          A pasture allows for a
          certain amount of
          grazing to occur each
     ...
Rivalry



Some commons are
rivalrous.

This means that an
individual’s use of the
common-pool resource
subtracts from oth...
Rivalry

For example, excessive
grazing may cause the
pasture to erode and
eventually yield less
benefit to its users. I.e...
Imagine a field of grass shared by 6 farmers, each with one cow…
A few facts: Each cow currently produces 20 liters of milk per day The carrying
capacity of the commons is 8 cows. For eac...
Do the farmers sit back and stay at 6 cows? Not if they are individual profit
maximizers (here simplified as milk producti...
Do the farmers sit back and stay at 6 cows? Not if they are individual profit
maximizers (here simplified as milk producti...
We are now at the carrying capacity -- do they stop? No.



                                                           “Th...
They are now at the maximum total milk production. But do they stop? No…




                               36 liters     ...
32 liters         32 liters



                 16 liters
                                             32 liters



      ...
28 liters     28 liters



                         14 liters
                                                  28 liters
...
“Well, everyone else is getting one,
                                          24 liters     24 liters
so me too!”




   ...
“Well, I can still increase milk production
           if I get a third cow”




                                  30 lite...
This could go on for a while in a
   vicious downward cycle…
Viewed graphically

                              200

                                                                   ...
Viewed graphically

                              200

                                                                   ...
And solutions?
Capturing Externalities

               If I overgraze a commons,
                that imposes a cost on any
            ...
Property Rights

Logic: If I own the property, I won’t overgraze it.




                                                 ...
Real Property

Strong property rights solve the rivalry problem by making real
property exclusive, i.e., all others but th...
Real Property
 Real property becomes a zero-
 sum environment.
  If I use a piece of land, you
   can’t use it.




    ...
Squatters and Free Riders

Anyone who uses someone else’s property is
either a squatter or a free rider.

Free riding
unde...
Some commons are
non-excludable --
there is no way to
keep people from
using them, even
though there is a
limited resource...
Excludability

       Many commons are
       non-excludable.
Some commons are non-excludable and
also non-rivalrous. We call these “public
goods.” This means that one’s use of the
com...
What About Intellectual
              Property?
Intellectual property in the US has
always been about creating incentives ...
Intellectual Property as Property

Congress, and the courts, increasing treat intellectual property
as a species of real p...
Intellectual Property Protection

Governments set up laws that protect the creator’s right of exclusion:

Patents - How so...
Patents


Protect how something works
or how it is made

Must be new

Must not be obvious

Must have a useful application
...
Trade Marks

Distinguish ownership of a product or service


Name, Logo, Slogan, Domain Name, Shape,
Colour, Sound, Smell
...
Registered designs


Distinctive look of object or item

Must be new

Must be unique




                                 ...
Examples of registered designs




                                 40
Copyright

Prevents copying of artistic or written works eg. Paintings, books,
films, music etc.

Can be bought, sold or l...
Free Riding on Intellectual Property




                                       42
Metallica vs. Napster

Heavy metal band Metallica
discovered that a demo of their
song ‘I Disappear’ had been
circulating ...
Judge Frank H. Easterbrook

“Patents give a right to exclude, just as the law of trespass does with
real property. Intelle...
Property Rights

The lessons from the economics
of property rights seems clear:
    Confer strong property rights
     o...
Misapplication of Property Rights?

 The drive to eliminate free riding is based on a fundamental
 misapplication of the ...
Positive Externalities

There is no need to fully
internalize benefits as there is
with harms.

If I put beautiful flowe...
Positive Externalities

          The fact that my popular store
          is located next to your obscure
          one m...
Positive Externalities
The idea that the law should
find a way to compensate for
these positive externalities
seems prepos...
Positive Externalities
          Planting trees is a good example of
          the disconnect between positive
          a...
Positive Externalities

One example where internalization
of positive externalities may be
important is in the case of the...
Postive Externalities

           It is important to note that unlike
           the case with negative
           externa...
Information is Different

Information can not be depleted, and thus is nonrivalrous.

Information is also non-excludable: ...
Information is Different

            Copying information actually
            multiplies the resource, not only in
      ...
Information is Different

We shouldn’t be worried about free
riding in information goods.

It’s not that free riding won’t...
Information is Different

Information goods create only positive externalities, and there is no
worry about uncompensated ...
Information is Different

           The production of any good involves
           fixed cost investments that must be
  ...
Information is Different

Intellectual Property rights
are justifiable only to the
extent that creators need to
recover th...
Information is Different
“What changed, The Times said, was that many more readers started
coming to the site from search ...
Invention and creation are not zero-
               sum activities
Applying property theory to intellectual property invol...
Property, Intellectual Property, And Free Riding
Property, Intellectual Property, And Free Riding
Property, Intellectual Property, And Free Riding
Property, Intellectual Property, And Free Riding
Property, Intellectual Property, And Free Riding
Property, Intellectual Property, And Free Riding
Upcoming SlideShare
Loading in...5
×

Property, Intellectual Property, And Free Riding

1,469

Published on

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,469
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
55
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Transcript of "Property, Intellectual Property, And Free Riding"

  1. 1. Property, Intellectual Property, and Free Riding
  2. 2. Traditional Commons The word derives from the unincorporated land in and around towns that everyone was free to use. Farmers could feed their sheep, people could cut wood, or even live on it.
  3. 3. Traditional Commons A pasture allows for a certain amount of grazing to occur each year without the core resource being harmed.
  4. 4. Rivalry Some commons are rivalrous. This means that an individual’s use of the common-pool resource subtracts from other’s use.
  5. 5. Rivalry For example, excessive grazing may cause the pasture to erode and eventually yield less benefit to its users. I.e., there is a limit to the amount of livestock the commons can support.
  6. 6. Imagine a field of grass shared by 6 farmers, each with one cow…
  7. 7. A few facts: Each cow currently produces 20 liters of milk per day The carrying capacity of the commons is 8 cows. For each cow above 8, the milk production declines by 2 liters (due to overgrazing, there is less grass for each cow: less grass, less milk!). 20 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 120 liters
  8. 8. Do the farmers sit back and stay at 6 cows? Not if they are individual profit maximizers (here simplified as milk production maximizers) 20 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 120 liters (6 cows)
  9. 9. Do the farmers sit back and stay at 6 cows? Not if they are individual profit maximizers (here simplified as milk production maximizers) “I’ll get another cow” 40 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 140 liters (7 cows)
  10. 10. We are now at the carrying capacity -- do they stop? No. “Then I’ll get another cow too” 40 liters 40 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 160 liters (8 cows)
  11. 11. They are now at the maximum total milk production. But do they stop? No… 36 liters 36 liters “I’ll get another cow” 18 liters 36 liters 18 liters 18 liters Total daily milk production for the commons: 162 liters (9 cows)
  12. 12. 32 liters 32 liters 16 liters 32 liters 16 liters 32 liters “My cow is now less productive, but 2 will improve my situation” Total daily milk production for the commons: 160 liters (10 cows)
  13. 13. 28 liters 28 liters 14 liters 28 liters “I’ll get another cow” 28 liters 28 liters Total daily milk production for the commons: 154 liters (11 cows)
  14. 14. “Well, everyone else is getting one, 24 liters 24 liters so me too!” 24 liters 24 liters 24 liters 24 liters Total daily milk production for the commons: 144 liters (12 cows)
  15. 15. “Well, I can still increase milk production if I get a third cow” 30 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 130 liters (10 cows)
  16. 16. This could go on for a while in a vicious downward cycle…
  17. 17. Viewed graphically 200 Maximum total production for commons: 162 liters/day 150 Total Milk Production per Day for all the cows combined 100 Milk Production (in liters) 50 0 0 2 4 6 8 10 12 14 16 18 20 Current level -50 Gain (or Loss) to Yet individual farmers will Individual Farmer for continue to add cows until adding one cow there are 15 cows on the commons -100 Total Cows
  18. 18. Viewed graphically 200 Maximum total production for commons: 162 liters/day 150 Total Milk Production per Day for all the cows combined loss in 100 output Milk Production (in liters) 50 GAP 0 0 2 4 6 8 10 12 14 16 18 20 Socially Result of individual -50 Optimal behavior Gain (or Loss) to Individual Farmer for adding one cow -100 Total Cows
  19. 19. And solutions?
  20. 20. Capturing Externalities  If I overgraze a commons, that imposes a cost on any one else who might want to use it.  Property rights prevent the creation of those negative externalities by internalizing the effects of the use of real property. 20
  21. 21. Property Rights Logic: If I own the property, I won’t overgraze it. 21
  22. 22. Real Property Strong property rights solve the rivalry problem by making real property exclusive, i.e., all others but the owner can be prevented from enjoying the benefits of the property. Keep Out! 22
  23. 23. Real Property  Real property becomes a zero- sum environment.  If I use a piece of land, you can’t use it. 23
  24. 24. Squatters and Free Riders Anyone who uses someone else’s property is either a squatter or a free rider. Free riding undermines the goals of the property system. Property owners won’t invest if others can free ride on that investment. 24
  25. 25. Some commons are non-excludable -- there is no way to keep people from using them, even though there is a limited resource, and overuse will probably destroy the resource.
  26. 26. Excludability Many commons are non-excludable.
  27. 27. Some commons are non-excludable and also non-rivalrous. We call these “public goods.” This means that one’s use of the commons does not subtract from other’s use.
  28. 28. What About Intellectual Property? Intellectual property in the US has always been about creating incentives to invent. Thomas Jefferson said: “inventions cannot, in nature, be a subject of property.” For him, the question was whether the benefit of encouraging innovation was “worth to the public the embarrassment of an exclusive patent.” On this long-standing view, then, free-competition is the norm. 34
  29. 29. Intellectual Property as Property Congress, and the courts, increasing treat intellectual property as a species of real property. = 35
  30. 30. Intellectual Property Protection Governments set up laws that protect the creator’s right of exclusion: Patents - How something works or the process of making it Trade marks – Words or logo to indicate the origin of the products or services Designs – The distinctive look of the product or object Copyright – Artistic or written works eg. Paintings, books, films, music etc. One product can be protected with many forms of IP 36
  31. 31. Patents Protect how something works or how it is made Must be new Must not be obvious Must have a useful application Should be Better or Cheaper or Different 37
  32. 32. Trade Marks Distinguish ownership of a product or service Name, Logo, Slogan, Domain Name, Shape, Colour, Sound, Smell Distinctive for the goods or services which you are applying to register it for Different from rival Can not give false impression 38
  33. 33. Registered designs Distinctive look of object or item Must be new Must be unique 39
  34. 34. Examples of registered designs 40
  35. 35. Copyright Prevents copying of artistic or written works eg. Paintings, books, films, music etc. Can be bought, sold or licensed Lasts up to 70 years after the author’s death Automatic right Not registered Cost is free 41
  36. 36. Free Riding on Intellectual Property 42
  37. 37. Metallica vs. Napster Heavy metal band Metallica discovered that a demo of their song ‘I Disappear’ had been circulating across the Napster network, even before it was released. This eventually led to the song being played on several radio stations across America and brought to Metallica’s attention that their entire back catalogue of studio material was also available. The band responded in 2000 by filing a lawsuit against the service offered by Napster. 43
  38. 38. Judge Frank H. Easterbrook “Patents give a right to exclude, just as the law of trespass does with real property. Intellectual property is intangible, but the right to exclude is no different in principle from General Motors’ right to exclude Ford from using its assembly line…Old rhetoric about intellectual property equating to monopoly seemed to have vanished [at the Supreme Court], replaced by a recognition that a right to exclude in intellectual property is no different in principle from the right to exclude in physical property…Except in the rarest case, we should treat intellectual and physical property identically in the law -- which is where the broader currents are taking us.” 44
  39. 39. Property Rights The lessons from the economics of property rights seems clear:  Confer strong property rights on intellectual property creators  This encourages them to invest in identifying, developing, and commercializing new inventions and managing the inventions they have already made. 45
  40. 40. Misapplication of Property Rights?  The drive to eliminate free riding is based on a fundamental misapplication of the property rights framework.  The economic theory is premised on the value of property rights as tools for internalizing negative externalities, not positive one.  Enclosing the commons made a single owner responsible for the consequences of overgrazing.  Regulation of property internalizes costs of pollution.  Zoning protects property from misuse. 46
  41. 41. Positive Externalities There is no need to fully internalize benefits as there is with harms. If I put beautiful flowers on by door step, I don’t capture the full benefit of those flowers -- passers-by can enjoy them too. Property law doesn’t give me a right to track them down and charge them for the privilege. 47
  42. 42. Positive Externalities The fact that my popular store is located next to your obscure one may drive traffic to your store. I don’t have the right to charge you for that service. That seems to be the premise that the modern shopping mall is based on. 48
  43. 43. Positive Externalities The idea that the law should find a way to compensate for these positive externalities seems preposterous to us. Positive externalities are everywhere. We couldn’t internalize them all if we wanted to. A beekeeper keeps bees for the honey. An externality is that trees in the area are pollinated. 49
  44. 44. Positive Externalities Planting trees is a good example of the disconnect between positive and negative externalities. Governments almost never restrict the planting trees, an act that generally confers only positive externalities. By contrast, governments often do regulate the cutting of trees, even on private property, because doing so can have long-term negative effects on the environment. 50
  45. 45. Positive Externalities One example where internalization of positive externalities may be important is in the case of the use of a piece of property that requires substantial fixed investment but is nonexcludable. Airports, bridges, roads all fit this description. In these cases, a use tax may internalize some (but not all) of the positive externalities. 51
  46. 46. Postive Externalities It is important to note that unlike the case with negative externalities, it is not necessary to internalize all the positive externalities. The owners of toll roads don’t capture the full social benefits of their road to users. They just need to capture enough of the benefits to make their investment worthwhile. 52
  47. 47. Information is Different Information can not be depleted, and thus is nonrivalrous. Information is also non-excludable: “Information wants to be free.” My use of an idea doesn’t impose any direct cost on you, and it is not something that others can be excluded from easily. This makes it a “public good.” 53
  48. 48. Information is Different Copying information actually multiplies the resource, not only in making another physical copy, but by spreading the idea and therefore permitting others to use and enjoy it. There are only positive externalities! Rather than a “tragedy,” an information commons is a “comedy” in which everyone benefits. 54
  49. 49. Information is Different We shouldn’t be worried about free riding in information goods. It’s not that free riding won’t occur -- it’s ubiquitous. Everyone can use E=mc2, Shakespeare, or The Magic Flute without compensating their creators. Because use of those works does no harm to their creators, it doesn’t create a negative externality. 55
  50. 50. Information is Different Information goods create only positive externalities, and there is no worry about uncompensated positive externalities. But artists still have to eat. 56
  51. 51. Information is Different The production of any good involves fixed cost investments that must be made before production, and marginal costs that are incurred each time an new unit is produced. For information goods, marginal cost of reproduction is near zero. Some art costs more than other: LOTR vs. a poem 57
  52. 52. Information is Different Intellectual Property rights are justifiable only to the extent that creators need to recover their average fixed costs. Thus, excludability is justified if it creates value for recovery of such costs. Sometimes it isn’t even necessary. 58
  53. 53. Information is Different “What changed, The Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to NYTimes.com. These indirect readers, unable to get access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue. "What wasn't anticipated was the explosion in how much of our traffic would be generated by Google, by Yahoo and some others," Ms. Schiller said. The Times's site has about 13 million unique visitors each month, according to Nielsen/NetRatings, far more than any other newspaper site. Ms. Schiller would not say how much increased Web traffic the paper expects by eliminating the charges, or how much additional ad revenue the move was expected to generate. “ (Rick Prelinger, via BoingBoing.net) 59
  54. 54. Invention and creation are not zero- sum activities Applying property theory to intellectual property involves the internalization not of negative externalities, but of positive ones -- benefits conferred on another. It’s a win-win situation! Internalizing positive externalities is not a proper goal of real property rights and shouldn’t be for intellectual property either. 60
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×