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Let's see if we can't keep the aggressive displays of ignorance to a minimum in this thread, please. If the discussion seems over your head then don't be afraid to ask what people mean, but do be afraid to state your obviously underinformed opinion as a matter of fact.
The basic premise behind granting intellectual property rights is without these rights there would be severe underinvestment in new ideas. The rights give the originator of the new idea the ability to appropriate some fraction of the benefits that his idea confers on society at large. Patent and copyright laws give the originator the exclusive rights to the use of his idea for a fixed period of time, along with the right to sell or license these rights in whatever way he sees fit, secure in the knowledge that the State will intervene to a reasonable extent to safeguard these rights. Most of the first world has IP laws based broadly on this model.
The only alternative mechanism (alternative to the granting of some sort of IP rights) I can see which is available to the State to push toward the socially optimal level of idea generation is for it to fund and direct research itself, which most first world governments also do to a greater or lesser extent.
Naively, all seems well and good. However, there is reason to believe that both of these mechanisms (at least as currently practiced) are FAR from ideal.
In the case of direct State-funded research, as I've stated multiple times recently, it appears that much of the research is "wasted" in order to satisfy the intellectual curiousity of a very few (the LHC), or on projects which capture public imagination (the Apollo Program) or on some combination of the two. Even more applied projects which are gov't sponsored appear to sprawl outwards. I know from personal experience how easy it is to escape the original parameters of research grants while continuing to draw from their funding.
In the case of IP laws, as currently practiced, there are ENORMOUS deadweight losses involved. The basic problem is that the granting of an IP monopoly drives the price of a protected product far above the marginal cost of production (which is where the price of unprotected products is assumed to lie in the absence of transactional frictions and with a few other simplifying assumptions). The IP monopolist restricts production and raises the price in order to maximize his profit, and in so doing he denies the use of his product to all those for whom the marginal utility of the product is between the marginal cost of production and the profit-maximizing price he sets. This is where the deadweight loss comes from. Note that a monopolist with perfect price-discriminating power does NOT cause such a deadweight loss; he charges everybody a different price based on the marginal utility (to that individual) of his product all the way down to people for whom the marginal utility is the marginal cost of production. This omniscient & omnipotent monopolist thus manages to appropriate the full social value of his idea (modulo the benefit which flows to owners of complementary ideas?). Without any price discrimination powers the worst deadweight losses show up when an idea is very expensive to generate, but the marginal cost of production of products using this idea is very low. Some of the worst examples of this are pharmaceuticals and Hollywood films. It can cost hundreds (?) of millions of dollars to invent a new drug or to produce a blockbuster movie with A list actors, special effects, good cinematography etc. but the marginal cost of production can be just a few cents for both of these examples.
One of the ideas that gets floated to deal with this deadweight loss problem is that of a patent buyout; the government buys the patent (copyright?) rights off of the inventor and allows free use of the idea by all.
Here's an example of a proposed mechanism for price setting (hilariously, it's protected unless you're at a university or similar institution)
Further thoughts, papers etc.?
The basic premise behind granting intellectual property rights is without these rights there would be severe underinvestment in new ideas. The rights give the originator of the new idea the ability to appropriate some fraction of the benefits that his idea confers on society at large. Patent and copyright laws give the originator the exclusive rights to the use of his idea for a fixed period of time, along with the right to sell or license these rights in whatever way he sees fit, secure in the knowledge that the State will intervene to a reasonable extent to safeguard these rights. Most of the first world has IP laws based broadly on this model.
The only alternative mechanism (alternative to the granting of some sort of IP rights) I can see which is available to the State to push toward the socially optimal level of idea generation is for it to fund and direct research itself, which most first world governments also do to a greater or lesser extent.
Naively, all seems well and good. However, there is reason to believe that both of these mechanisms (at least as currently practiced) are FAR from ideal.
In the case of direct State-funded research, as I've stated multiple times recently, it appears that much of the research is "wasted" in order to satisfy the intellectual curiousity of a very few (the LHC), or on projects which capture public imagination (the Apollo Program) or on some combination of the two. Even more applied projects which are gov't sponsored appear to sprawl outwards. I know from personal experience how easy it is to escape the original parameters of research grants while continuing to draw from their funding.
In the case of IP laws, as currently practiced, there are ENORMOUS deadweight losses involved. The basic problem is that the granting of an IP monopoly drives the price of a protected product far above the marginal cost of production (which is where the price of unprotected products is assumed to lie in the absence of transactional frictions and with a few other simplifying assumptions). The IP monopolist restricts production and raises the price in order to maximize his profit, and in so doing he denies the use of his product to all those for whom the marginal utility of the product is between the marginal cost of production and the profit-maximizing price he sets. This is where the deadweight loss comes from. Note that a monopolist with perfect price-discriminating power does NOT cause such a deadweight loss; he charges everybody a different price based on the marginal utility (to that individual) of his product all the way down to people for whom the marginal utility is the marginal cost of production. This omniscient & omnipotent monopolist thus manages to appropriate the full social value of his idea (modulo the benefit which flows to owners of complementary ideas?). Without any price discrimination powers the worst deadweight losses show up when an idea is very expensive to generate, but the marginal cost of production of products using this idea is very low. Some of the worst examples of this are pharmaceuticals and Hollywood films. It can cost hundreds (?) of millions of dollars to invent a new drug or to produce a blockbuster movie with A list actors, special effects, good cinematography etc. but the marginal cost of production can be just a few cents for both of these examples.
One of the ideas that gets floated to deal with this deadweight loss problem is that of a patent buyout; the government buys the patent (copyright?) rights off of the inventor and allows free use of the idea by all.
Here's an example of a proposed mechanism for price setting (hilariously, it's protected unless you're at a university or similar institution)
Further thoughts, papers etc.?
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