Are Patents and Copyrights “Efficient”?
Posted on June 8, 2017
No, not in any absolute sense. They are, however, better than having no government intervention at all.
Actually, standard economic theory shows that intellectual property rights are horribly inefficient, for intuitively obvious reasons. IP rights are legal monopolies and nothing else. If their owners (like most owners) seek profits they will set prices high enough so that many customers are priced out of the market. Since IP costs nearly nothing at all to copy and use, that means that many customers are being deprived of potential value they could have had at zero cost to anyone. That is an obvious inefficiency.
Moreover all told it is by any reasonable account an extremely large inefficiency. Look for example at entertainment industry estimates of the immense cost of pirating. To turn it around, that is also a very crude estimate of the human value loss if IP rights were enforced better.
The reason we have IP rights is so that inventors and writers and musicians and so on can get paid. There are and always have been many other ways to do this. However because of the ease of copying other approaches typically lead to low wages for most creative people. So IPs were invented.
However there are government interventions that in many cases can be more efficient than IP rights. In the case of basic science for example it is often far more efficient to have government pay for scientific research and then own all resulting patents and then (for example)make them freely available. Here’s why:
1. Good science is driven by prestige, not profits. Profits tend to lead you to study what is profitable rather than what is a fundamental contribution.
2. Profit-driven research leads to secrecy. Good science depends on early and open sharing of information.
3. Profit-driven science leads to huge salaries in certain fields. That wastes government money. Thus if salaries inflate to ten times as high, the government can afford only 1/10 as much research.
4. Profits can increase incentives for cheating and bad science and unethical science.
So why don’t we fund science that way more often?
Ask the oligarchs and the right-wingers. They always claim that government is “inefficient” (always without specifying exactly how) and they claim that we need to cut taxes. And they win a lot of elections on that platform.
In addition to alternative funding schemes, judicious limits on IP rights can improve efficiency. “Fair use” doctrine is a (highly contested) example. Also there is no good reason for example why copyrights should last 70 years. Hardly any writer lasts 70 years after writing a book.