One of the puzzles that I’ve been struggling with over the years is how to approach the notion of efficient distribution in intellectual property law. In Spillovers, Mark Lemley and I develop an economic theory of IP (and many other areas of law really) that is a step in the direction of understanding how distribution is not simply a secondary fairness concern within intellectual property but instead is a primary efficiency concern, and it is more than simply getting more consumption from a nonrival good. Distribution of intellectual works often facilitates productive use and spillovers that need not be internalized to generate “efficient incentives” or “efficient demand signals” via the price system. I’ve written about this here before and in the forthcoming paper, so I’ll not belabor the point. My point is simply that in copyright, fairness and distributive values need not always be seen as inefficient sacrifices that would better be accomplished via the tax system. Some of the “commons components” of copyright law promote distributive values and (arguably) achieve both efficiency and fairness.
This strikes me as absolutely right. But your analysis may hinge on your ability to decouple the measurement of efficiency from “ability to pay” metrics. For example, consider the following series of hypotheticals:
1) A singer sells a recording of a song to a radio station for $50, and permits the station to permit listeners to download it for free. 50,000 listeners do so.
2) A firm pays a million dollars to the singer so its 100 employees can be given recordings of this “exclusive performance;” DRM prevents any from recording or even sharing the recording.
Which outcome is more efficient? On a standard economic analysis, clearly 2): it generates $999,950 more revenue. Even if we assume each listener in 1) pays $1 apiece, it isn’t even close. And even if we accept the models developed in my piece in YJOLT comparing widespread distribution to environmental preservation (i.e., we measure the long-term propensity of free recordings to drive willingness to pay for or otherwise support that or other artists), we probably can’t get numbers that move 1) close to 2).
Larry Tribe has some piece in Constitutional Choices on allocative vs. distributive efficiency….i’ll look for that.
I think one promising step toward a more realistic analysis of efficiency would be recognizing the declining marginal utility of money. But that’s another post!
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