Intellectual Property Incentives : Economics and Policy Implications

Classical proofs for the efficiency of markets do not extend to information goods. Economists have worked since the 1960s to construct sophisticated microeconomic framework for analyzing when intellectual property (“IP”) rights benefit to society. This chapter reviews IP theory's main findings and asks how well they have been implemented in US law. Section III begins by reviewing how IP mediates the benefits of faster innovation against the burden of monopoly. It then shows why IP is generally less efficient when multiple firms compete and how shrewd reforms could improve the tradeoff. Finally, it explores extended models in which ideas for R&D investments are scarce so that IP incentives must coordinate contributions by firms that may not know of each others' existence. Section III asks how well legislators and judges have incorporated these insights into everyday patent, antitrust, and copyright law. Section IV presents a brief conclusion