Against Laissez Faire IP (2)

Thinking some more about IP. I've always been puzzled as to whether this is really a legitimate "market failure." After all, market failures occur either because of information asymmetries, market structure problems (eg, monopoly), or externalities. And none of those seem to obviously characterize a laissez faire IP situation. But externalities are actually fundamentally a consequence of poorly-defined property rights - namely the inability to exclude other people from the benefits/costs of some activity undertaken. This is why, for instance, common access resources like fisheries or bison herds tend towards over-harvestation. In these traditional models, bison have value both today and tomorrow, but because of poorly defined property rights, the "scarcity rents" (ie, tomorrow's value) are ignored, because hunters do not own the bison and thus cannot be sure that someone else won't shoot the bison. Thus, in these common access resource problems, hunters hunt up to the point where the marginal benefit of the last bison killed is equal to the marginal cost of hunting it, but because scarcity rents (ie, tomorrow's value) are ignored, hunters hunt too many bison, and thus extinction is a risk.

This may not fit the IP regime exactly, but part of the problem with intellectual goods is the inability of the creator to exclude access by others once the recipe (eg, patent, copyright) is known. It's not exactly like a common access problem, since here the problem is whether to make some costly capital expenditure which has some low probability of successfully creating a valuable good for which there is social demand in the unknown future, but the issue is still nonetheless that if the decision-maker cannot limit access to the resource by competitors, then the private revenues to be enjoyed will fall to zero and that is therefore too small a prize to warrant the risk-taking on the creator's part ex ante.

The arguments made against IP, like Kinsella and Jones, seem to miss that crucial point. They correctly point out that ideas are not scarce and duplication does not reduce the actual number of these resources in existence (it actually increases them). But, they ignore the intertemporal problem - these goods have to be created, and thus are unlike lakes and streams or any other natural resource for which individuals receive some endowment. The real issue is how to provide properly aligned incentives to creators such that they will take these risks, which are socially beneficial, but at the same time, limit the damage created by monopoly rights? The solution doesn't seem to be laissez faire IP, but heterogeneous IP expiration times. Interestingly, what this seems to suggest is that the more valuable the good, the shorter the monopoly right should be, since firms can recoup fixed costs in a shorter period of time, but low valuation goods should have longer IP lives. This is the opposite rationale as to that shown in the so-called Sonny Bono Act legislation which has extended copyrights indefinitely.