Policies Toward Intellectual Property Cost And Public Good Aspects of Information

Implications Costly information Costly information Consumers Consumers May not have all information about goods May not have all information about goods May suffer “harm” in consuming goods May suffer “harm” in consuming goods Producers provision of information limits harm Producers provision of information limits harm Producers Producers Provide costly information only if excludable Provide costly information only if excludable Information as a Public Good Information as a Public Good Not generally excludable Not generally excludable Use of information by one does not exclude others from using it Use of information by one does not exclude others from using it

Markets may provide too little Info No incentive for producers No incentive for producers Lack of excludability means suppliers cannot capture value of information they create Lack of excludability means suppliers cannot capture value of information they create Non-creators can use information created by others without bearing the cost Non-creators can use information created by others without bearing the cost Consumers Consumers may suffer “harm” in consuming products in order to gather information about them may suffer “harm” in consuming products in order to gather information about them Or make less satisfying consumption decisions Or make less satisfying consumption decisions

Solution: Make Information Excludable Patents Patents Creates property rights for inventors Creates property rights for inventors 20 year monopoly on use of patented item 20 year monopoly on use of patented item Pharmaceutical patents extended by FDA review plus half of the clinical testing time, up to 5 years total Pharmaceutical patents extended by FDA review plus half of the clinical testing time, up to 5 years total Copyright Copyright Creates property right to creative works Creates property right to creative works Covers written materials, images, and recordings Covers written materials, images, and recordings For at least the life of the creator plus 70 years For at least the life of the creator plus 70 years Trademarks Trademarks Exclusive use of registered marks Exclusive use of registered marks Encourages building of reputations for brands Encourages building of reputations for brands Creates an incentive for a firm to provide information about its brand Creates an incentive for a firm to provide information about its brand

Current Problem Conflict between private use and commercial use Conflict between private use and commercial use Rights of consumers versus rights of producers Rights of consumers versus rights of producers Need to preserve markets for information Need to preserve markets for information Consumers must be able to purchase use of information or it has no value to them Consumers must be able to purchase use of information or it has no value to them Producers must be able to limit use of information in order to get paid for producing it Producers must be able to limit use of information in order to get paid for producing it Ease of information exchange due to technological change continues to pose challenges to pre-electronic policies Ease of information exchange due to technological change continues to pose challenges to pre-electronic policies Examples: electronic tapes/CDs, music downloads, film/music pirating, file sharing Examples: electronic tapes/CDs, music downloads, film/music pirating, file sharing

Cost Structure Contributes to Problem High up-front or sunk costs High up-front or sunk costs Pharmaceuticals, movies for example Pharmaceuticals, movies for example Cost of use or distribution relatively low Cost of use or distribution relatively low DVDs, CDs, are cheap to produce DVDs, CDs, are cheap to produce Internet exchange even cheaper Internet exchange even cheaper Cost of producing new drugs in quantity small relative to R&D, testing costs Cost of producing new drugs in quantity small relative to R&D, testing costs Information easy to “steal” after it is produced Information easy to “steal” after it is produced Rights enforced through litigation, courts, which adds cost and uncertainty Rights enforced through litigation, courts, which adds cost and uncertainty These may undermine incentives to produce information These may undermine incentives to produce information Unless cost of producing information also falls Unless cost of producing information also falls