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Is copyright justified?

A Serious Challenge to Orthodoxy

A pair of economists argue there is no need for copyright at all: Have we gone too far in protecting intellectual property?

In a paper that has gained wide attention (and caught serious flak) for challenging the conventional wisdom, economists Michele Boldrin and David K. Levine answer the final question with a resounding yes. Copyrights, patents, and similar government-granted rights serve only to reinforce monopoly control, with its attendant damages of inefficiently high prices, low quantities, and stifled future innovation, they write in Perfectly Competitive Innovation, a report published by the Federal Reserve Bank of Minneapolis. More to the point, they argue, economic theory shows that perfectly competitive markets are entirely capable of rewarding (and thereby stimulating) innovation, making copyrights and patents superfluous and wasteful.

…Economists prize economic growth but distrust monopoly, so accepting the latter to obtain the former is a Faustian bargain at best. With Perfectly Competitive Innovation, Boldrin and Levine vigorously reject the contract.

Innovation, they argue, has occurred in the past without substantial protection of intellectual property. “Historically, people have been inventing and writing books and music when copyright did not exist,” notes Boldrin. “Mozart wrote a lot of very beautiful things without any copyright protection.” (The publishers of music and books, on the other hand, sometimes did have copyrights in the materials they bought from their creators.)

…In arguing for competitive innovation rather than the monopolistic variety, Boldrin and Levine emphasize that they are not saying creators don’t have rights. On the contrary, they stress that innovators should be given “a well defined right of first sale.” (Or, more technically, “we assume full appropriability of privately produced commodities.”) And creators should be paid the full market value of their invention, the first unit of the new product. That value is “the net discounted value of the future stream of consumption services” generated by that first unit, which is an economist’s way of saying it’s worth the current value of everything it’s going to earn in the future.

So if Britney Spears records a new song, she should be able to sell the initial recording for the sum total of whatever music distributors think her fans will pay for copies of the music during the next century or so. Distributors know her songs are in demand, and she knows she can command a high price. As in any other market, the buyer and seller negotiate a deal.

The same rules would hold for a novelist who writes a book, a software programmer who generates code, or a physicist who develops a useful formula. They get to sell the invention in a competitive market. They’re paid whatever the market will bear, and if the market values copies of their song, book, code, or formula, the initial prototype will be precious and they’ll be well paid.

…UCLA’s Klein says the paper is “unrealistic modeling with little to do with the real world.” In a paper with Kevin Murphy of the University of Chicago and Andres Lerner of Economic Analysis LLC, Klein writes that Boldrin and Levine’s model works only under the “arbitrary demand assumption” that demand for copies is elastic, so that as price falls over time output increases more than proportionately and profit rises. In the case of Napster and the music industry, this “clearly conflicts with record company pricing. That is, if Boldrin and Levine were correct, why are record companies not pricing CDs as low as possible?” Why indeed?

According to University of Chicago’s Lucas, “There is no question that Boldrin and Levine have their theory worked out correctly. The issue is where it applies and where it doesn’t.” Their strongest examples, Lucas argues, are Napster and the music industry. “If we do not enforce copyrights to music, will people stop writing and recording songs?” he asks rhetorically. “Not likely, I agree. If so, then protection against musical ‘piracy’ just comes down to protecting monopoly positions: something economists usually oppose, and with reason.”

…What is clear, though, is that Boldrin and Levine have mounted a formidable assault on the conventional wisdom about innovation and the need to protect intellectual property. That it has met with opposition or incredulity is to be expected. What matters are the next steps.

“The reaction for now is surprise and disbelief,” Boldrin says. “We’ll see. In these kinds of things, the relevance is always if people find the suggestion interesting enough that it’s worth pushing farther the research. All we have made is a simple theoretical point.”

About Eric Olsen

Career media professional and serial entrepreneur Eric Olsen flung himself into the paranormal world in 2012, creating the America's Most Haunted brand and co-authoring the award-winning America's Most Haunted book, published by Berkley/Penguin in Sept, 2014. Olsen is co-host of the nationally syndicated broadcast and Internet radio talk show After Hours AM; his entertaining and informative America's Most Haunted website and social media outlets are must-reads: Twitter@amhaunted, Facebook.com/amhaunted, Pinterest America's Most Haunted. Olsen is also guitarist/singer for popular and wildly eclectic Cleveland cover band The Props.

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