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Intellectual property, complex externalities, and the knowledge commons

Author

Listed:
  • Nathan Goodman

    (George Mason University)

  • Otto Lehto

    (New York University)

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.

Suggested Citation

  • Nathan Goodman & Otto Lehto, 2024. "Intellectual property, complex externalities, and the knowledge commons," Public Choice, Springer, vol. 201(3), pages 511-531, December.
  • Handle: RePEc:kap:pubcho:v:201:y:2024:i:3:d:10.1007_s11127-023-01110-8
    DOI: 10.1007/s11127-023-01110-8
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    More about this item

    Keywords

    Innovation; IP; Externalities; Transaction costs; Law and economics; Polycentricity;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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