Intellectual property, complex externalities, and the knowledge commons

Nathan Goodman () and Otto Lehto ()
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Nathan Goodman: George Mason University
Otto Lehto: New York University

Public Choice, 2024, vol. 201, issue 3, No 8, 531 pages

Abstract: Abstract Intellectual property (IP) can internalize positive externalities associated with the creation and discovery of ideas, thereby increasing investment in efforts to create and discover ideas. However, IP law also causes negative externalities. Strict IP rights raise the transaction costs associated with consuming and building on existing ideas. This causes a tragedy of the anticommons, in which valuable resources are underused and underdeveloped. By disincentivizing creative projects that build on existing ideas, IP protection, even if it increases original innovation, can inadvertently reduce the rate of iterative innovation. The net effect of IP law on innovation and welfare depends on the relative magnitude of these positive and negative externalities. We argue that the current regime probably suffers from excessive, and excessively rigid, IP protection. This motivates the search for institutional alternatives and complements. We suggest that a monocentric IP rights regime may not be the only, or the most efficient, way to internalize the positive externalities of innovation. The knowledge economy supports the emergence of diverse, polycentric forms of bottom-up self-governance, both market and community led, that entail the citizen coproduction of the norms and practices of intellectual creation and discovery.

Keywords: Innovation; IP; Externalities; Transaction costs; Law and economics; Polycentricity (search for similar items in EconPapers)
JEL-codes: D62 D72 O34 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11127-023-01110-8

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