chapter iii economic analysis of the public...

ChapterIIIEconomicAnalysisofthePublicDomain

Eli M. Salzberger

1. INTRODUCTION

Inthepastdecade,thefieldofintellectualpropertyhasseenthemostsignificantchangesinceitsbirthfollowingtheinventionoftheprintingpress.Ontheonehand,thedigitalrevolutionhasbroughtaboutaprocessofcommodificationandpropertization–avastincreaseininformationalgoodsandservicesthatareprotectedbypropertyrules,eitherbylaworbyothermeanssuchastechnology(whichitselfisprotectedbylawagainstcircumvention).Ontheotherhand,wehaveseentheemergenceofasocialmovementthatseekstohaltorreducethisprocessofcommodification.Thepreservationofthepublicdomainisakeyissueforthismovement.Itisarguedthatthelegislatureandthecourtsaresurrenderingtothebigmediaandotherpowerfulinterestgroupsbyenhancingthescopeofintellectualpropertyandincreasingcontrolovercreativity,thuseffectivelyshrinkingthepublicdomain.1

Inthecourseofthisdebatetheexactmeaningoftheterm‘publicdomain’hasalsochanged.Originallyitwasdefinedasincludingcreationsforwhichintellectualpropertyprotectionhadexpired.Thenitalsoencompassedstatutorylimitationstointellectualpropertyrights,suchasfairuse,2andnowitmayevenrefertoanyinformationresourceforwhichlegalrightstoaccessanduseforfreeareheldbroadly.3ThedefinitionofthepublicdomainthatIwilladoptinthischapterincludescreationsthatwerenotinitiallysubjecttointellectualproperty,andthisdefinition,infact,equatesthe‘commons’withthepublicdomain.Thisisagoodworking

1. L.Lessig,‘Coase’sFirstQuestion’,27Regulation38-41(2004).2. W.Gordon,‘FairUseasaMarketFailure:AStructuralandEconomicalAnalysisoftheBetamax

CaseanditsPredecessors’,82Columbia Law Review,1600-1657(1982).3. A.ChanderandM.Sunder‘TheRomanceofthePublicDomain’,92California Law Review,

1331-1373(2004), at p. 1338.,atp.1338.

L.GuibaultandP.B.Hugenholtz(eds),The Future of the Public Domain,27–58©2006KluwerLawInternational.PrintedintheNetherlands.

28 Eli M. Salzberger

definitionfromalawandeconomicsperspective,knowingthatoneofthemajorrationalesoflawandeconomicsforpropertizationisthe‘tragedyofthecommons’,or,accordingtoourworkingdefinition,thetragedyofthepublicdomain.Iwillreturntothedefinitionofthepublicdomaininsection6,whereIwillquestionthedichotomybetweenintellectualpropertyandthepublicdomainandproposeamorecomplexviewofpropertyrights.

Thedebatebetweenpropertysupportersandtheadvocatesofthepublicdomainisportrayedbysomescholarsasadebatebetweenthelawandeconomicsmovementonthepro-propertizationside,andprogressivescholarsonthepropublicdomainside.Thus,forexample,ChanderandSundlerwrite:‘SinceHardin,lawandeconomicsscholarshavelaunchedacrusadetoexposetheevilofthecommons–theevil,thatisofnot propertizing.Progressivelegalscholarshaverespondedinkind,exposingtheperilsofpropertization’.4Inthischapter,Iwilltrytoshowthatthislabelingisinaccurateandthatthelawandeconomicsanalysisismorecomplexthanwhatisusuallypresented.Forthispurpose,Iwillbeginwithafewwordsonmyownperceptionofthelawandeconomicsapproach,whichissomehowdifferentfrom,andmuchbroaderthan,thetraditionalconceptionofthismovement(section2).

Butalreadyfrommyopeningstatement,it isclearthatlawandeconomicsinsightscanbeusefultobothsidesofthisdebate.Onapositivelevelofanalysis,theongoingcommodificationofinformationcanbeperceivedasaninevitablephenomenon,basedonthetraditionalpositiveanalysisofHaroldDemsetzonwhichIwillelaborateinsection3.Moreover,theaccusationsofthepropublicdomaincampagainstthecourseoflegislativeandjudicialexpansionofintellectualpropertyisinitselfaninsightoflawandeconomics,or,moreprecisely,ofitssub-fieldofpublicchoicetheory,portrayingthislegalchangeastheresultofpressurebypowerfulinterestgroups.

Onanormativelevelofanalysis,theoppositionofintellectualpropertyrightsversusthepublicdomainisconfusingwithinthelawandeconomicsparadigmitself.First,economistsgenerallyfavorfreemarketsovergovernmentregulation,butinthecontextofintellectualpropertyitisnotclearwhethercreatingintellectualpropertyrightsbylawisamanifestationofthefreemarketoracaseofgovernmentintervention.Ontheonehand,themaintooltocreateintangiblepropertyisthelaw;henceintellectualpropertybelongsintheinterventionistcamp.Ontheotherhand,marketscanoperateonlyonthebasisof(private)property;inotherwords,propertyisabasicpre-conditionforthemarkettooperate.Henceintellectualpropertyisanintegralpartofafreemarket.

Second,theprimenormativegoaloflawandeconomicsistomaximizethewelfareofsociety.Withoutintellectualproperty,incentivestocreatewillbelackingandthusnewdrugswouldnotbedeveloped,newideaswouldnotbepublished,culturalandscientificprogresswouldceaseorsignificantlyslowdown,decreasingthewelfareofsociety.However,mostnewinventionsarebasedonolderones,whetherthisisscientificinnovationorculturalcreation.Fullpropertizationofeveryideaand

4. Id.,at1332-3.

Economic Analysis of the Public Domain 29

expressionwould,therefore,slowdownscientificandculturalprogress.Inordertoenhancesociety’swelfare,wedoneedasignificantpublicdomain.Grantingintel-lectualpropertyrights,therefore,worksinbothdirections.Itstimulatesinnovationandcreation,thusincreasingtotalwelfare,whileatthesametimecreatingbarrierstofurtherinnovationandcreation,decreasingwelfaregrowth.Thisrequiresamoresophisticatedframeworkofanalysistoachievetherightbalance.Thisaspectwillbediscussedinsection4.

Insection5,Iwillelaborateontheeconomicsofthedigitalrealm,whichoughttochangetheparametersunderlyingthetraditionaleconomicrationaleofintellectualpropertyandthusofthepublicdomain.Oneofthemostimportantfeaturesinthiscontextrelatestothestateoftechnologyanditspaceofchange,traditionallytakenasanexogenousvariablewithinthelawandeconomicsanalysis.Iwillarguethatthestateoftechnologyoughttobeendogenized,transformingtheequilibriumoftraditionalanalysisandalsoaffectingtheanalysisoftraditionalmarketfailuressuchashightransactioncosts,whichmaynolongerplayacrucialroleinthechoiceoflegalrules.

2. LAWANDECONOMICSANDINTELLECTUALPROPERTY

Thelawandeconomicsmovementcanbedescribedasanapplicationofeconomictheorytoexamineandevaluatetheformation,structure,processandimpactoflawandlegalinstitutions.Thescienceofeconomicshascomealongwaysinceitsdefinitioninthemid19thcenturybyMarshallas‘astudyofman’sactionintheordinarybusinessoflife;itinquireshowhegetshisincomeandhowheusesit’.5Thisdefinitionfocusesoneconomicmarkets,whereaseconomicsciencetodayalsoaddressesnon-economicmarketsandindeedhumaninteractionsthatarenotpartofanymarketactivity.Alreadyin1932,6Robbinsdefinedeconomicsasa‘science,whichstudieshumanbehaviorasarelationshipbetweenendsandscarcemeanswhichhavealternativeuses’.Thisdefinitionofthescienceofeconomicsasascienceofchoiceimpliesthateconomicstodaycanbeperceivedasagrandtheory.7Takingintoaccountgametheoryandsocialchoiceassub-fieldsofeconomicsmaybeevenRobbin’sbroaddefinitionofeconomicsisnolongerbroadenoughtoday.

Ibelievethatamoreaccuratedescriptionofthescienceofeconomics,andbyderivation,ofthelawandeconomicsmovementisnotthroughitsobjectsofanalysisor(right-wing)ideology,butthroughitsmethodology.Theeconomicsmethodologyisbasedon(1)simplifyingaverycomplexreality,(2)applyingarigorousmodel

5. A.Marshall,Principles of Economics,London,Macmillan,1922.6. L.Robbins,An Essay on the Nature and Significance of Economic Science,London,Macmillan,

1932,p.16.7. Q.Skinner,The Return of Grand Theory in the Human Sciences,Cambridge,Canto,1990.In

thissensethecontemporaryscopeofeconomicsresemblesitsperceptionbyitsmodernfounder(AdamSmith)morethanitsperceptionbythe19thcenturyeconomists(primarilyMarshall)whodevelopedsomeofitsmajormethodologicaltools.HenceSkinner’sbooktitle.


toanalyzethissimplifiedreality,(3)derivingresultsfromthemodelastopossiblecausalconnectionsbetweenitsvariousvariablesand(4)deducinginsightswithregardtotherealworldbasedonthemodel’sresults.

Oneofthemainadvantagesofthismethodologyisthatitisevolutionary:onecanconstructasimplemodelbasedonfarreachingsimplifyingassumptions,anddevelopthismodelgraduallybyrelaxingorcomplicatingsomeoftheseassump-tions.8InthissensetheChicagoschool,whichusesthebasicmicroeconomicsmarketmodelandappliesittolawcanbeperceivedasafirstgeneration,whileneo-institutionalanalysisorbehaviorallawandeconomicscanbeseenasasecondorthirdgeneration.9Theotheradvantageisthatsuchamethodologyprovidestheacademiccommunitywithacommonlanguage,andthedebatesregardingthesubjectmatteroftheanalysiscanfocusonthemodel,ontheconclusionsfromthemodelregardingtherealworld,andindeedonthesimplifyingassumptions.

Inasimilarwaytothescienceofeconomics,thelawandeconomicsmovementispopularlyidentifiedwithefficiencyorwealthmaximization,asagreatsupporteroffreemarketsandasanopponenttogovernmentorcentralinterventioninmarketactivities.Thisperceptionissomewhatpartialorevendistorted.Indeed,intheareaofintellectualpropertythetraditionallawandeconomicsanalysisdoesnotbelievein‘natural’marketsandadvocatescentralinterventionbygrantingintellectualpropertyrights,onthebasisofwhichmarkettransactionscantakeplace.Inthisspecificfieldthedefinitionof‘market’iscrucialand,asIwilltrytoshowlater,thepublicdomaincanbe(andoughttobe)perceivedasasortofamarket.Hencethelawandeconomicsapproachshouldnotbeviewedasaprioriinfavorofintellectualpropertyrightsandagainstthepublicdomain.Inaddition,wealthmaximizationisnottheonlypossibleobjectiveofthelawandeconomicsapproach,andonceothernormativeprinciplesaretakenintoconsiderationinthefoundationofthisapproachthepopularviewofthestancesofLawandEconomiccanbedisputed.

Thelawandeconomicsmovementisengagedintwodifferentprojects–thenormativeanalysisandthepositiveanalysis.Thenormativeanalysistriestotelluswhatthedesirablelegalorconstitutionalarrangementsare.Toperformsuchananalysisonehastodefineanormativeobjective,thesourceofwhichisoutsidethescopeofthescienceofeconomics.Theleadingnormativegoalofmosteco-nomicanalysesliteratureisindeedefficiency.However,thereareseveralcompetingdefinitionsofefficiency–maximizationofutility,maximizationofwealth,Paretooptimality–andcompetingviewsregardingthegoalofefficiencyastheprimary

8. However,thisprocessofsimplifyingtherealitythroughintendedunrealisticassumptionsisasourceofspecificideologytoimplicitlyentereconomicanalysis.

9. N. Mercura and S. Medema,N.MercuraandS.Medema,Economics and the Law: From Posner to Post-Modernism,Princeton,PrincetonUniversityPress,1997;N.Elkin-KorenandE.Salzberger,Law, Economics and Cyberspace: The Effects of Cyberspace on the Economic Analysis of Law,Cheltenham,UK,EdwardElgarPublishing,NewHorizonsinLawandEconomicSeries,2004, Ch. 1.3. The main, Ch. 1.3. The mainCh.1.3.Themaintaskofneo-institutionallawandeconomicsistotakeonboardthefactthatbehaviorandactionsarenotonlytheresultofindividualdecisions,buttheresultofcollectivedecisionswhichareaffectedbytheinstitutionalstructureanddecision-makingruleswithininstitutions.Themaintaskofbehaviorallawandeconomicsistorelaxtheassumptionoffullrationalbehavior.


normativeprinciple10orasasecondbesttoutilitymaximizationasviewedbywelfareeconomics.Inaddition,amajorshareofconstitutionallawandeconomicsrelatestoanothernormativegoal(whichisalsoonespecificnotionofefficiency)emanatingfromdifferenthistoricalroots–thesocialcontracttheoriesofthestate–consensusorParetooptimality.

Thetwomajornormativeparadigmstoanalyzeintellectualpropertyarethenaturallawparadigm(whichisdominantintheContinentalEuropeanlegalworld)andthepositivistone(whichisdominantintheAnglo-Americanlegaltradition).Thenaturallawparadigmisoutsidethereachoflawandeconomics,asitisdeontologicalratherthanteleological;itjudgeswhetheralaw,decisionoraction,isrightorwrongonthebasisofitsintrinsicmoralvaluewithoutregardtoitsconsequences.Thus,aLockeantypeofnaturallawjustificationtopropertyrights,includingintellectualpropertyrights,isoutsidethescopeoflawandeconomics,asistheKant-Hegelself-fulfillingorself-flourishingjustificationfortheprotectionofintellectualproperty.Incontrast,arepublicanjustificationforintellectualpropertycanbeanalyzedwithinthelawandeconomicdiscourse,as,ofcourse,theutilitariantheoryofintellectualproperty.11Fromalawandeconomicsperspective,thedifferencebetweentheclassicalutilitarianjustificationandtherepublicanonelieswiththeassumptionsregardingindividualpreferences.Whiletheutilitarianapproachviewspreferencesasexogenoustotheanalysis,therepublicanapproachpositsthatthelegalarrangementsthemselvescanaffectthebasicindividualpreferencesinawaythatwillmakethemmorecooperativeoraltruistandlessdistantandconflictual,allowingtheextensionofthefrontiersofgeneralutility.12

Theseverygeneralandphilosophicalobservationsareimportantinthecontextofthepublicdomain.Thisconceptexistsbeyondthespecificintellectualpropertycontextandispartofarepublicanvocabulary.Thepublicdomain,likethepublicsphere,isaplaceinwhichindividualsmeeteachother,interact,exchangeviewsandinformation,attempttoinfluenceeachother’sopinionsandpreferencesandindeedabsorbinspirationandideasforcreation.Thus,underananalyticalframeworkwhichassumesendogenouspreferences,thedevelopmentandpreservationofsuchpublicspacesarebeneficialfromapointofviewofwelfaremaximization,becauseonceindividualschangetheirpreferencestowardsmorealtruistones,thecollectiveisabletoreachutilityorwealthfrontiersthatwerenotavailablewiththesetsofinitialpreferences.Inthecontextofintellectualproperty,thepublicdomainisnotmerelyaplaceoffreeflowofinformationandopinions;itisalsoaplaceofproductionorevenameansofproduction,andunlikethetraditionalproductionmeansofland,laborand,tolesserdegree,capital,thepublicdomainisnotrivalrousorexclusive.Inthecourseofthischapterwewillexaminehowthismulti-purposepublicdomain

10. R.Posner,‘Utilitarianism,Economics,andLegalTheory’,8Journal of Legal Studies103-104,(1979).

11. Onthesefournormativesourcesoftheoriesofintellectualproperty,see:C.Fisher,Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards,DiscussionPaper01-22,ResourcesoftheFuture,Washington,2001.

12. Elkin-KorenandSalzberger,supranote9,Ch.10.


affectsthetraditionalanalysisregardingbothefficiencyinproductionandefficiencyinallocation.

Positivelawandeconomicsanalysistriestoexplainwhythingsareastheyareortodescribelegalphenomenaineconomiclanguage.Itportrayscausalconnectionsbetweenvariousvariablesinthelegalandeconomicarenas.Thegrowingcontributionofinstitutionallawandeconomicshighlightsthecentralrolethattheinstitutionalstructuresplaywithinpositiveanalysis,andrightlyso.Thepublicdomaininthiscontextcanbeviewedasauniqueinstitution,whichlikeotherinstitutionsaffectsindividuals’choicesandsocialoutcomes.

Oneoftheweakpointsoftheeconomicanalysisoflawapproachistheinnerequilibriumbetweennormativeandpositiveanalyses.Sincebothpositiveandnormativeanalysesarefoundeduponspecificassumptionsastohumanbehavior,itisverypossiblethatthenormativeprescriptionofthedesirablelegalarrangementisdifferentfromthepositiveanalysisofwhatlegislaturesandcourtswillactuallydo.Whatistheuseofconstructinganormativetheoryifthesameunderliningassumptionsleadustopredictthattherecommendedsolutiondoesnotstandachanceofbeingselected.13

Themostimportantgeneralpremiseoftheeconomictheoryisthatopencom-petitionwithinaperfectmarketwillleadtoefficiency,whichisthemostdesirablesocialoutcome.Theconceptofefficiencyineconomictheoryrelatestoboththeproductionofgoodsandtheirallocation.Efficiencyinproductionmeansthatitisimpossibletoproducemoregoodsusingtheavailableresources.Efficiencyinallocationmeansthatitisimpossibletotransfergoodsamongindividualsinawaythatmakesoneindividualbetteroffwithoutimprovingthelotofothers(Paretoefficiency),orthatitisimpossibletoenhancethetotalwelfareofsocietybyfurthertransfersofgoodsorservices(Kaldor-Hicksorwelfaremaximizationefficiency).Yet,thetermefficiencycanbedefinedinabroaderway.ItcanencompassbothThomasHobbes’analysisofthecreationofthestateasanefficientsolutiontotheproblemsofthestateofnature,andAdamSmith’sanalysisoftheinvisiblehandasthebalancingfactorofhumanmarkets.Again,thecomplexityoftheintellectualpropertyconceptofthepublicdomainisthatitencompassesbothaplaceofproductionandaplaceofconsumption,anditrelatesbothtotraditionaleconomicactivitiesandtotraditionallynon-marketactivities.

Thepremisethatopencompetitionwithinaperfectmarketwillleadtoefficiencycontainsapositivecomponent(opencompetitionwillleadtoefficiency)andanormativecomponent(efficiencyisthedesirablesocialoutcome).Thisgeneralpremisewasadvancedbytheeconomicapproachtolawinseveraldirections,thetwomostimportantbeingtheeconomictheoryofthestateandthelimitsoffreemarketsjustifyingcentralintervention.Theeconomictheoryofthestateanalyzes

13. The distinction between normative and positive analyses is not exclusive to the economic ap-Thedistinctionbetweennormativeandpositiveanalysesisnotexclusivetotheeconomicap-proach.Thusthecorequestionsofjurisprudenceorthephilosophyoflawarewhatlawis,andwhatlawoughttobeandwhataretheinter-relationsbetweenthesetwoquestions.However,thisdistinctioniscrucialinlawandeconomics,becauseofthecommonassumptionsastohumanbehavior.


theemergenceofthestate,itscentralgovernment,anditsinstitutionalstructureasderivedfromproblemsofcollectiveactionthataremarketfailuresofsorts.Studiesofthelimitsofthefreemarketseektoidentifythecircumstancesinwhichcentralgovernmentorcentralgovernanceisjustified,orshouldtakeplaceinordertoshiftthemarket(imperfect)solution.Onlyinsuchcircumstancesshouldgovernmentintervene.Suchcircumstancesareonceagainrelatedtomarketfailures.Fourtraditionalmarketfailuresarecommonlymentioned:monopoliesorexcessivemarketpowers,lackora-symmetryofinformation,publicgoodsandexternalities.

Thistraditionalmarketanalysis,however,assumesthreeimportantassump-tionsthatprecedetheoperationofafreemarket:agivencommunity,agivenstateoftechnology,andagivenallocationofpropertyrightsamongtheplayersinthemarket.Theformerpresumptionincludesbothasetcompositionofacommunityandagivensetofpreferencesorutilityfunctionsofeachofitsmembers.Thelatterrelatesbothtotheobjectsofproperty,aswellastoitsoriginalallocation,fromwhichafreeandcompetitivemarketwillenhancethegeneralwelfareorthewealthofaspecificcommunity.Inotherwords,afreeandcompetitivemarketwillmaximizeefficiencyforasetcommunity,comprisingmemberswithgivenpreferencesandresourcesunderasettechnologicalstate.Whenwediscusstheconceptofapublicdomainwehavetorelaxthesepresuppositions.

Whenfocusingonthepublicdomain,theproblemofdistinguishingbetweennormativeandpositiveanalysisbecomesapparent.Propertyrightsareanalyzedinthediscourseoflawandeconomicswithintwobroadframeworks:theincentivesparadigmandthetragedyofthecommonsparadigm.Inthenexttwosections,Iwilltrytopresentthesetwoparadigmsinthecontextofthenormative-positivedistinctionandwithsomeinsightsintotheserationaleswhenappliedtointellectualpropertyandthepublicdomain.

3. THETRAGEDYOFTHECOMMONSPARADIGMANDTHEPOSITIVEANALYSISOFTHEPUBLICDOMAIN

Thetragedyofthecommonsisthedominantparadigminlawandeconomicsforthepositiveanalysisofpropertyingeneral,andlandlawinparticular.However,itcaneasilybeextendedtoexplainintellectualpropertyanditsconnectionwiththepublicdomain;itcanalsobeviewedasanormativeanalysisofproperty,ofintellectualpropertyand,byderivation,ofthepublicdomain.

ParallelsaredrawnbetweentheEnglishenclosuremovement,theprocessoffencingoffcommunallandandturningitintoprivateproperty,whichlastedfromthe15thtothe19thcentury,andtherecenttrendofcommodificationofinformationandtheexpansionofintellectualpropertyrights.14Fromalawandeconomicsperspectivethefirstenclosuremovementistreatedmainlyinthecontextofthetragedyofthe

14. J.Boyle,‘TheSecondEnclosureMovementandtheConstructionofthePublicDomain’,66Law and Contemporary Problems33-74(2003).


commonsparadigm,whichisdominatedbypositiveanalysis.AlthoughthetermtragedyofthecommonsisattributedtoHardin,15itwasinfactHaroldDemsetz16whoofferedthistheoreticalframeworktoanalyzetheconceptofpropertyrights.

Demsetzholdsthatpropertyrightsemergeinresponsetothedesiresofeconomicactorstoadjusttonewbenefit-costpossibilities.Thus,‘theemergenceofnewprivateorstate-ownedpropertyrightswillbeinresponsetochangesintechnologyandrelativeprices’.17Hisanalysisbeginswithanabsenceofpropertyrights,thusrejectingthenaturallawconceptofpropertyrights.Land,andwhatisonit,isownedbynoone,orratherbyeveryone.Thiscanbeanoptimalandstaticequilibriumifeveryindividualcanuseandproducefromthelandallheorsheisseekingfor.Populationgrowthanddensitymaychangethisequilibrium.Sodoesanincreaseindemandthatisbeyondtheconsumptionneedsofthelocalpopulation.Oncesuchasituationoccursaclashbetweenindividualsoverthelandandwhatisonitwilltakeplace,whichwillbringaboutover-consumptionanda‘tragedyofthecommons’,makingallindividualsworseoffthanbefore.

DemsetzcomparedthecreationofpropertyrightsbytheNativeAmericansintheNortheastandtothesameintheSouthwest.Whenhuntingwascarriedonprimarilyforpurposesoffoodandtherelativelyfewfursthatwererequiredforthehunter’sfamily,Demsetzwrote,‘Huntingcouldbepracticedfreelyandwascarriedonwithoutassessingitsimpactonotherhunters…Theredidnotexistanythingresemblingprivateownershipinland.’18Butthefurtradechangedthat.First,thevalueofthefurstotheIndiansincreasedconsiderably.Second,andasaresult,thescaleofhuntingactivityrosesharply.Sothetribesdevelopedterritorialhuntingandtrappingrightstomakesurethattheresourceswerecaredforprudentlyandtoenhancelong-termefficiency.

Whydidn’ttheindigenouspeoplesoftheAmericanSouthwestdevelopsimilarinstitutions?Demsetzcitestworeasons.First,intheirareatherewerenoanimalsofcommercialimportancecomparabletothefur-bearinganimalsoftheNorth.Second,thoseanimalsthatdidpopulatetheSouthwestwereprimarilygrazingspeciesthattendedtowanderoverlargetractsofland,makingitdifficulttopreventthemfrommovingfromoneparceltoanother.‘HenceboththevalueandcostofestablishingprivatehuntinglandsintheSouthwestaresuchthatwewouldexpectlittledevelopmentalongtheselines.Theexternalitywasjustnotworthtakingintoaccount,’wroteDemsetz.19

ItisimportanttoemphasizethatDemsetzprovidesuswithapositiveanalysisofthedevelopmentofpropertyrights,whichisalsoadynamicanalysisportrayingtheprocessofpropertization(andde-propertization).Thisdescriptiondoesnotinvolveastateorcentralgovernment,whichiscalledupontointerveneinmarketactivities.

15. G.Hardin,‘TheTragedyoftheCommons’,162Science1243-1248(1968).16. H.Demsetz,‘TowardsaTheoryofPropertyRights’,57American Economic Review347-360

(1967).17. Demsetz,supranote16,at349.18. Ibid,p.351.19. Ibid,p.352.


Implicitly,thedescriptionofDemsetzisalsohisnormativeanalysis.Demsetzendorsesthecreationofpropertyrightsbecauseitfulfilstheefficiencycriterion,definedprobablyintermsofbothwelfaremaximizationandParetooptimality.Histheoryisbasedonanequilibriumbetweennormativeandpositiveanalysis.

Thecurrentchangesinintellectualpropertylaws–theprocessofcommodificationofinformationorthe‘secondenclosuremovement’–isinlinewithDemsetz’stheory,accordingtowhichtheemergenceofnewprivateorstate-ownedpropertyrightswillbeinresponsetochangesintechnology.However,threemajordifferencesmustbepointedoutandlookeduponmorecarefullywhenweapplyDemsetz’stheorytothecontemporaryanalysisoftheexpansionofintellectualpropertyanditseffectsonthepublicdomain.First,incontrasttoland,informationisnon-rivalrous;itsuseorconsumptiondoesnotpreventothersfromparallelconsumption.Nonetheless,unlikeland,informationhastobeproducedinordertobeconsumed,andfreeusagebyeveryonecanaffecttheincentivestoproduceitinthefirstplace.Inaddition,itcanbearguedthatfreeconsumptionofinformationalgoodswouldreducethevalueofthisinformationforeachuser.Inotherwords,thetragedyofthecommonsininformationalgoodsisdifferentfromthetragedyofthecommonsinland,andwewillhavetoexaminewhetherthesedifferencesaresuchthatthedynamicofpropertizationofinformationissubstantiallydifferentfromDemsetz’sdescription.

Second,Demsetz’sanalysisassumestechnologytobeanexogenousvariableintheprocessoftheemergenceofpropertyrights.Heindeedrelatestotheeffectsoftechnologicalchangeonthecreationofpropertyrights,butnottotheeffectsofpropertyrightsonthecourseandpaceoftechnologicaldevelopment.Sincetechnologicalchangestodayaremuchmorerapidanddynamicitisproblematictoignorethemasanessentialvariableintheanalysisofproperty.Iwillelaborateonthispointinsection5.Third,Demsetzportraystheemergenceofpropertyrightsastheresultofmarketactivitieswithouttheinterventionofthestateorcentralgovernment.Thisfactenableshimtoignorethepublicchoicesideofthestory.Collectiveactionproblems,interestgroupsandrentseekingareabsentfromtheanalysis.Thisisnotthecasewiththe‘secondenclosuremovement’andwewillhavetotakeonboardthisdifferenceseriouslywhenappliedtothecurrentdebateregardingthepublicdomain.

TheanalysisofDemsetzcanbeextendedtode-propertizationaswell.Accordingtohisrationale,ifgovernments(orcourtsorothercollectivedecision-makingbodies)interveneinthemarketofpropertyrights,asinthecontemporarysituation,marketactivitiescanbringaboutde-propertization.Thephenomenaofopensource,creativecommonsandotherformsofenhancingthepublicdomaincanbeseenasmarketresponsestotheinefficientexpansionofpropertyrightsbycentralagencies.20ThesamepositiveanddynamicanalysisofferedbyDemsetzfordescribingthecreationofpropertyrightscanservetoanalyzetheexpansionofthepublicdomaininthe

20. Itisnoteworthythatsuchde-propertizationmovementsavailthemselvesoftheexistinglegalinstrumentsofcontractandpropertylawtoperformtheshifttowardsde-propertization.SeeN.Elkin-Koren,‘ExploringCreativeCommons:ASkepticalViewofaWorthyPursuit’,see p.325inthisvolume.


shadowofastrong,oroverlystrong,propertyrightsregime.Demsetzhimselfhintedatthisdirectionbyassertingthat‘[t]hegreaterarediseconomiesofscaletolandownershipthemorewillcontractualarrangementbeusedbytheinteractingneighborstosettlethesedifferences.Negotiatingandpolicingcostswillbecomparedtocoststhatdependonthescaleofownership,andparcelsoflandwilltendtobeownedinsizeswhichminimizethesumofthesecosts’.21

Demsetz’theoreticalframeworkdoesnotonlyallowforadynamicofde-prop-ertization,butitalsomentionsthevariablesthatcanpredictsuchaprocess,someofwhichmayfitthedescriptionofthenewmodeofproductionofinformationalgoods.22Demsetzreferredtotheanalysisofcorporationsasanalternativestructureofpropertyrights,statingthat‘[t]heinterplayofscaleeconomies,negotiatingcost,externalities,andthemodificationofpropertyrightscanbeseeninthemostnotable‘exception’totheassertionthatownershiptendstobeanindividualaffair:thepublicly-heldcorporation.Iassumethatsignificanteconomiesofscaleintheoperationoflargecorporationsisafactand,also,thatlargerequirementsforequitycapitalcanbesatisfiedmorecheaplybyacquiringthecapitalfrommanypurchasersofequityshares.Whileeconomiesofscaleinoperatingtheseenterprisesexist,economiesofscaleintheprovisionofcapitaldonot.Hence,itbecomesdesirableformany‘owners’toformajoint-stockcompany’.23

Benkleremphasizesthepeerproductionmodeasanalternativetoproductionwithinafirm.However,ifwefocusonthepropertyrightsaspectsofthenewproduc-tionmode,theanalogybetweencorporationsandthemarket-drivenenlargementofthepublicdomaincanbeofgreatinterest.Demsetz’statementregardingthenatureofcorporationscanactually,withsmallmodifications,describethepropertyrightsaspectofthepeerproductionprocessemergingtoday.24Thedecreaseoftransactioncostsandcontractformationcostsisleadingtogreaterproductionoutsidefirmsandbackintothemarkets.However,theatomizationofjointworkeffortsenabledbythenewtechnologiescreatesanewtypeofmarketactivitynotseenbeforetheInternetrevolution.

Tosummarize,thetragedyofthecommonsparadigmoffersusafruitfulpositivelawandeconomicmodelofthecurrentstateofthepublicdomain:bothitsinitialshrinkageastheresultofintellectualpropertyexpansion,andmoreimportantlyitssubsequentexpansionintheshadowofintellectualproperty,duetoinefficientlegalinterventionandrapidchangesoftechnology.Sincethetragedyofthecommonsisalsoanimplicitnormativeanalysiswecanconcludethatlawandeconomicsisnotmerelybiasedinfavorofpropertization,butthatitalsoendorsesaviablepublicdomain.

21. Demsetz,supranote16,at357.22. Y.Benkler,‘Coase’sPenguin,or,LinuxandtheNatureoftheFirm’,112(3)Yale Law Journal

369-447(2002).23. Demstez,supranote16,p.357.24. Elkin-KorenandSalzberger,supranote9,pp.62,130-136.


4. THEINCENTIVESPARADIGMANDTHENORMATIVEANALYSISOFTHEPUBLICDOMAIN

Theincentiveparadigmisthemaincontemporarylawandeconomicsframeworkforthenormativeanalysisofintellectualproperty.Iwillfirstelaborateonitsessence,itsdifferenceswiththetragedyofthecommonsparadigmandtheimplicationsofthesedifferencesforthepublicdomain.Subsequently,Iwilldiscussthealternativestointellectualpropertyrightswithinthisframework,aswellastheireffectsonthepublicdomain.

4.1. The IncenTIve ParadIgm versus The Tragedy of The commons

Likethetragedyofthecommonsframework,theincentiveparadigminthedomainofintellectualpropertyisanextensionoftheoriginalanalysisofpropertyrightsinphysicalobjects.25Asapurenormativeanalysis,thestartingpointisanormativegoal,which,asexplainedabove,isexternaltolawandeconomics.Thisgoalisefficiencydefinedintermsofwealthmaximization.26Ihavenotedbeforethatefficiencyisnottheonlypossiblenormativeprinciplefortheeconomicanalysisoflawandthatthereareseveralcompetingdefinitionsofefficiency,butonceoneacknowledgesthatgovernmentinterventionisneededtofacilitateadesirablestructureofintellectualpropertyitisobviouswhyefficiencyinourcontextistranslatedintomaximizationofwealth,ratherthanParetooptimalityormaximizationofutility.Inanycase,internaldebateswithinlawandeconomicsastothepreferrednormativegoalofintellectualpropertyarrangementsarescarce.

Theincentivesparadigmfocusesonthelegalinstrumentsneededtomaximizesociety’swealth.Itrecognizesthatwhileinaworldwithoutintellectualpropertyrightstherewillbenoincentivestocreate(orlimitedincentivestodoso)andpropertyrightsshouldthereforebeestablished,propertizationalsohindersthecreativeprocess,asnewcreationsinmostcasesrelyonpreviousones.Inthissense,onecannotdescribethelawandeconomicsmodelasaprioripropropertizationandantipublicdomain.Thequestionisratherwhatistheoptimalextentofintellectualpropertyandthepublicdomain,ortherightmixtureofthetwothatwillmaximizesociety’swealth.However,thisquestionleavesouttwoimportantfactorsthatarenotaddressedbythecoremodel:thedefinitionofthesociety(state,territory)forwhichweareseekingtomaximizewealthandthedefinitionofatimeframeforsuchmaximization.

Thetwofactorsarelesscrucial(butnotabsent)intheanalysisoftraditionalproperty(tangiblesandland),asphysicalpropertyisconnectedtoaspecificterritory.

25. W.LandesandR.Posner,The Political Economy of Intellectual property Law,AEIBrookingsJointCenterforRegulatoryStudies,WashingtonD.C,2004,p.11.

26. Id.,Ch.1.


Saveexceptionalexternalities,itusuallyalreadyexistsandhasarelativelylong-termvalue.Intellectualpropertyhasnogeographicalbarriers(orminorgeographicalbarriersoflanguage)anditstermofvaluecanvarysignificantlyfromnewsitemsofonlymomentaryvaluetolargescientificbreakthroughsormajorideaswithalmosteternaleffect.Inaddition,intellectualpropertyismostlyhypotheticalorpre-creationandthustheimpactofcurrentintellectualpropertyandthepublicdomainregulationiscrucialforfuturecreationofpotentialproperty.Forintellectualproperty,therefore,thetwoquestions–whosewealthweareseekingtomaximizeandwhatisthetimeframeforsuchmaximization–becomehighlyimportant.

Indeed,thedebatebetweenthirdworldcountriesandtheindustrializedworldregardingpatentsonmedicationsexemplifiesthecrucialfactorsofterritoryandtimespan.Iftheunitforwhichweseektomaximizewealthisthetraditionalnationalstate,AmericanintellectualpropertylawsshouldnottakeintoaccounttheirimpactonpeoplesufferingfromillnessesinAfrica,savesomeminorpotentialwealtheffectsofthedecreasingpopulationinAfricaonAmerican’swealth(suchasadecreaseinexportstoAfrica).Iftheunitforwhichwemaximizewealthisglobal,thepicturebecomesentirelydifferent.Inotherwords,acrucialfactorinsettingthedesirableextentofintellectualpropertylawsforaspecificjurisdictionisthebalanceoftradeofthisjurisdictionincreations.Astatethatexportsmoreproductsofthemindthanitimports,willoptforabroadextentofintellectualproperty,whereasastatethatismainlyanimporterwillfinditmoreefficientforitscitizenstosetalowdegreeofintellectualpropertyprotection.

Similarly,ifthetimeunitforwealthmaximizationismomentaryorshort,thenmostintellectualpropertyoughttobeinthepublicdomain–thepriceofmedicationsshouldbetheirmarginalproductioncost,becausethepotentialeffectonfuturecreationisnottakenonboard.Ifthetimeunitforsuchmaximizationislong,thentheincentivestocreateshouldbetakenintoconsideration.Buthowlongshouldthistimeunitbe,andhowcanwepossiblypredicttheimpactoftoday’sregulationonfuturecreation,especiallyinenvironmentinwhichtechnologicalprogress(whichitselfdependsonthecurrentintellectualpropertyregulation)issorapid?Thegrow-ingpaceoftechnologicalchangedecreaseseventherelevancyofthefewempiricalstudiesontheimpactofintellectualpropertylawsonculturalandscientificprogress.Inshort,settingthetimeframeforwealthmaximizationisproblematicfrombothconceptualortheoreticalpointofviewandanempiricalone.

Theincentivesparadigmhasseveralcommonfeatureswiththetragedyofthecommonsparadigm,butalsoseveralimportantdifferences.Themainsimilaritybetweenthetwoconcernsthemajorrationaleforpropertization(andde-propertiza-tion).Liketheargumentfromthetragedyofthecommonsdiscourse–thatwithoutpropertyrightswewillwitness,ontheonehand,overuseofthecommonresources,and,ontheotherhand,lackofincentivesforprivateinvestmenttooptimizetheproductioncapabilitiesfromtheresourceanditspotentialvalue–theincentivediscoursearguesthatwithoutintellectualpropertyrightstherewillbenosufficientincentivetoinventandcreate.Demsetzhimselfconnectedthetwowhenhewroteinthelastpartofhispath-breakingarticle:‘Considertheproblemsofcopyrightandpatents.Ifanewideaisfreelyappropriablebyall,ifthereexistcommunalrights


tonewideas,incentivesfordevelopingsuchideaswillbelacking.Thebenefitsderivablefromtheseideaswillnotbeconcentratedontheiroriginators.Ifweextendsomedegreeofprivaterightstotheoriginators,theseideaswillcomeforthatamorerapidpace’.27

However,thereareafewimportantdifferencesbetweenphysicalpropertyandintellectualpropertyandthusbetweenthetragedyofthecommonlandandtheincen-tiveparadigms.First,asImentionedbefore,informationalgoodsarenon-rivalrous.Consumptionbyonewillnotpreventsimultaneousconsumptionbyothers.Inthissense,lackofpropertizationofideaswillnotcreateatragedyofthecommonsinthesenseofover-consumption.Onecanarguethatinsteadofover-consumptionofphysicalobjects,inintellectualpropertywewillwitnessadecreaseinvalueforuserswiththeincreaseofthenumberofotherusers(seebelowLandesandPosner’srecentargument).Buttheoppositecanalsobeargued:thatincreasingparallelusecreatesapositivenetworkeffect.Inotherwords,thevalueforauserwillincreasewhenothersusethesamecreation,especiallywhenwearetalkingaboutcommunicativeproducts–software,culturalcreations,etc.Thenon-rivalrouseffectofintellectualproperty,itseems,doesmatter,butitsimpactisintwoopposingdirections,thedominanceofwhichcannotbedeterminedwithoutempiricaldata.

ASeconddifferencebetweenthetwoframeworksisthatforthenewpropertythesamerationale,whichpointstowardsthepropertizationofideas–incentivetocreate,isalsopointingtothefactthatsuchpropertizationwillleavelessideastobethesourcefornewcreations.Inotherwords,propertizationofideasworksinbothdirectionswhenthegoalistomaximizecreation,knowledgeandprogress.Itcanbearguedthatthisphenomenonhasanequivalentinthetragedyofthecom-monsphysicalworld,asthetragedyisnotonlyreflectedbyover-consumption,butalsobylackofinvestmenttoenhancethevalueoftheproperty.Butinthecontextofintellectualpropertythisconsiderationworksinanoppositedirection:whilepropertizationinphysicalobjectsworksmainlyasapositiveincentivetoinvestandenhancethevalueoftheproperty,propertizationofideaswilldecreasethesourcesfornewcreationsandthusitsfuturevolume.Forthesetworeasons,intellectualpropertyrights,unlikepropertyrightsinlandandtangibles,arethoughttobeagoodmechanismtomaximizeincentivesonlyiftheyaregivenforalimitedtimeandwithvariousexceptions,suchasfairuse.

ItisinterestingtonotethatDemsetzhimselfignoredthesetwodifferencesandpointedtoanotherdifferencebetweenintellectualpropertyandphysicalresources.Hewrote:‘Buttheexistenceoftheprivaterightsdoesnotmeanthattheireffectsonthepropertyofotherswillbedirectlytakenintoaccount.Anewideamakesanoldoneobsoleteandanotheroldonemorevaluable.Theseeffectswillnotbedirectlytakenintoaccount,buttheycanbecalledtotheattentionoftheoriginatorofthenewideathroughmarketnegotiations.Allproblemsofexternalitiesarecloselyanalogoustothose,whichariseinthelandownershipexample.Therelevantvariablesare

27. Demsetz,supranote16,p.359.


identical’.28Demsetz’spointisalittlevaguebecauseitisnotclearwhetherthisisanargumentfromadistributivejusticeperspectiveoraninnerefficiencyone(andifso,whatishispreciseconceptofefficiency).DemsetzignoredthetwodifferencesImentionedhereprobablybecausehisargumentisconstructedwithinthecategoryofexternalitiesasamarketfailure,whichrequirescentralinterventionandcorrection,whilethecontemporaryanalysisofintellectualpropertyisconductedincontextofthepublicgoodscategoryofmarketfailures.29

Thefocalpointofthepublicgoodanalysisisthatsincethemarginalcostsofcopyingaworkoracreationareminimal(almostzero)themarketpriceofanonpropertiedworkwillbesolowthatitwillnotcovertheinitialinvestmentofitscreatorandthusnewworkswillnotbedeveloped.Onlypropertizationofsuchworkswillgrantsufficientincentivesfortheircreationinthefirstplace.LandesandPosnersetthisframework.30Theyportraycopyrights(andbyextensionothertypesofintellectualproperty)asamechanismtoenhanceincentivestocreate,butacknowledgethatthebenefitsshouldbeoutweighedwiththeadministrativecostsofregistrationandenforcementand,moreimportantly,withtheshrinkageofthepublicdomain,whichisthemainsourcefornewideasandcreations.Thus,theywrite:‘…beyondsomelevelcopyrightprotectionmayactuallybecounterproduc-tivebyraisingthecostofexpression…Creatinganewworktypicallyinvolvesborrowingorbuildingonmaterialfromapriorbodyofworks…Thelessextensivecopyrightprotectionis,themoreanauthor,composer,orothercreatorcanborrowfrompreviousworkswithoutinfringingcopyrightandthelower,therefore,thecostsofcreatinganewwork’.31

Inalaterpaper,however,PosnerandLandeschangetheiranalysisandadvocateforanindefinitelyrenewablecopyright,insteadofintellectualpropertyrightslimitedinduration.32Itispuzzlinghowinthisrecentarticletheauthorsignorethemajorreason,mentionedintheirearlierpiece,forlimitingthedurationofintellectualproperty–thatpropertization,while,ontheonehand,providesincentivesforcreation,ontheotherhand,limitsthesourcesfornewcreationandthusislikelytoreducesuchcreation.Insteadtheyspecifysixotherreasons,connectedmainlytotransactioncosts,forlimitingthedurationofintellectualpropertyandarguethatthesereasonsarenotconvincing.

ThemainthrustoftheirlaterargumentisdisputingthefirstdifferenceImentionedabovebetweenlandandinformationalgoods–thepublicgoodnatureofthelatter,whichwillpreventatragedyofthecommonsevenifthereisnopropertization.PosnerandLandesarguethatthisisnotcorrectbecauseoveruseofideas,images,

28. Ibid.29. Traditionalmicroeconomicanalysispointstofourmajormarketfailure–monopolies,public

goods,a-symmetricinformationandexternalities.30. LandesW.andPosnerR.‘AnEconomicAnalysisofCopyrightLaw’.18Journal of Legal Studies,

325-363(1989).31. Id., at p. 332.Id.,atp.332.32. W. Landes and R. Posner, ‘Indefinitely Renewable Copyright’. 70W.LandesandR.Posner,‘IndefinitelyRenewableCopyright’.70University of Chicago Law

Review471-518(2003).


literarycharactersetc.willdecreasetheirvalueandhencetheirusageis,infact,rivalrous.TheirmainexampleisDisney’sMickeyMouse,onwhichtheywrite:‘IfbecausecopyrighthadexpiredanyonewerefreetoincorporatetheMickeyMousecharacterinabook,movie,song,etc.,thevalueofthecharactermightplummet.NotonlythepublicwouldrapidlytireofMickeyMouse,buthisimagewouldbeblurred,assomeauthorsportrayhimasCasanova,othersascatmeat,othersasananimal-rightsadvocate,stillothersasthehenpeckedhusbandofMinnie’.33

Posner’sandLandes’pointissimilartoDemsetz’squalificationsregardingthepotentialeffectsofnewideasandcreationsonoldones,andinthissensethedifferencesbetweenlandandinformationalgoodsmightnotbesobigasLandesandPosnerportray.However,theyignorethenetworkeffectmentionedabove,whichislikelytobalancethedecreasingvalue.Moreimportantly,intheirlaterpaper,LandesandPosnerignorethemainpoint,e.g.thecontributionoftheideasandcreationsinthepublicdomainasincentivesandthelikelihoodofdevelopingnewideasandcreations,whichisthemaincharacteristicsofinformationalgoods,distinguishingthemfromtangiblesandrealestate.Inthissense,themajordifferencebetweentheinformationalpublicdomainandthephysicalpublicsphereisthattheformerisnotonlyacommonpoolfornon-rivalrousconsumption,butalsoacommonproductionmean,whichcanfosterParetoimprovementnotonlyinconsumptionbutalsoinproduction.

Oneoftheoverlookeddifferencesbetweentheincentivesframeworkandthetragedyofthecommonsoneisrelatedtothenormative-positivedistinctionwithinthelawandeconomicsmovement.Theincentiveframeworkisapurelynormativeanalysis,whilethetragedyofthecommons,asInotedbefore,originatesfromapositiveanalysis.Inthissense,whilethetragedyofthecommonsframeworkforpropertyrightscanbepresentedascreatinganinnerequilibriumbetweenpositiveandnormativeanalyses,theincentiveparadigmasapurenormativeanalysisthathastobeimplementedbylaw-makersinordertomaterialize,isexposedtomanipulationbyinterestsgroups,socialchoiceproblemsandotherpublicchoiceobstacles.Itlacksequilibriumbetweennormativeandpositiveanalysis,or,inotherwords,itcannotforecastwhetherthedesirable(optimal)solutionswillbeimplementedonthebasisofthesamefundamentalassumptionsofthelawandeconomicsparadigmasawhole,especiallytheassumptionofrationalbehavior.

Thispointisespeciallyimportantinthecontextofthecontemporarydebateaboutthepublicdomain.Whilethesupportersofintellectualpropertyextensioncomprisearelativelysmallgroupofpeople(orrathercorporations)whichislikelytogetwellorganizedbecausetheircostsofcollectiveorganizationwillbelowerthantheexpectedbenefitsfromsuchorganization,thesupportersofagreaterpublicdomainencompassmanyindividualswhoseindividualgainsfromorganizationislikelytobesmallerthantheimmenseorganizationcosts;thustheirlikelihoodtoinfluencethedecision-makerswillbemuchlowerthanthatoftheintellectualpropertylobbies.Thelegislativeresults,therefore,willreflectabias(intermsoftheoptimal

33. LandesandPosner,,supranote32,p.488.


pointaccordingtotheincentiveanalysisitself)towardstheintellectualpropertycamp,andthusadistortedbalancebetweenintellectualpropertyandthepublicdomainwillensue.Thechangingstructureoftherelevantmarkets,concentrationofmarketpowersinthehandsoffewpublishersandtheemergenceofinterestedmega-corporationsinrecentdecadescanprovideanadditionalexplanationfortheincreasingpropertizationandcommodificationinourtimes.

Ifthisdescriptionisaccurateandlegalrulesresultinsub-optimalsolutionsduetopublicchoiceproblemswecanenvisagemarketcorrectionstothelaw,throughcontractualmeans.Inotherwords,individualswhofavoragreaterpublicdomainattheexpenseofpropertizationarelikelytochanneltheirpoliticalactivitiestothemarketinsteadofthepoliticalsphere.Indeed,theCreativeCommonsprojectisexactlyacontractualshiftfromthelegalregime.34Thissetupcancharacterizealsotheopensourceprojectandotherpeerproductionphenomena.

Afinaldifferencebetweenthetragedyofthecommonsframeworkandtheincentiveoneisconnectedtotheconceptofefficiencyofthetwomodels.Theincentiveparadigm,asexplainedabove,ispreachingforintellectualpropertylawsthatmaximizetotalwealth.ThetragedyofthecommonscanbeviewedasdirectedtowardsParetooptimalitydefinitionofefficiency.Thisdifferenceisdirectlyrelatedtotheroleofcentralgovernmentintheincentivemodel,whichisabsentinthetragedyofthecommonsone.

4.2. alTernaTIves To InTellecTual ProPerTy wIThIn The IncenTIve ParadIgm and TheIr effecTs on The PublIc domaIn

Thecentralgovernmentplaysanimportantroleinthediscussiononthepublicdomainvis-à-vistheincentiverationale.Unlikethedeontologicalrationaleforintellectualproperty,whichfocusesonthenaturalrighttobegrantedownershiponselfcreatedideas–rationale,whichhasthusafirstordertypeofjustificationinfavorofintellectualpropertyrights(andagainstthepublicdomain)–thestartingpointoftheeconomicparadigmisamarketfailureofpublicgoods,whichinthecaseofinformationandideasisalsoapublicproductionmean.Theeconomicrationaleforintellectualpropertyrightsandagainstthepublicdomainis,therefore,asecondorderjustification.Inotherwords,thefirststepistoexaminewhethersuchamarketfailuredoesexist;aseparateissueisthedesirableremedytocorrectthisfailure.

Withregardtotheremedyissue,itoughttobeemphasizedthatestablishingintellectualpropertyrightsisonlyonepossibleremedyforthistypeofmarketfailure.Centralproductionofinformationandideas,directsponsoringoftheseactivitiesintheformofresearchinstitutionsanduniversitiesandliabilityorothersortoflegalrights(notnecessarilypropriety)arealternativesolutions.Thisseems

34. Elkin-Koren,‘ExploringCreativeCommons:ASkepticalViewofaWorthyPursuit’,see p.325inthisvolume.


tobeatrivialpoint,butacloserlookattheexistingliteratureshowsthatitisnotso.Eachoftheseremedieshasadvantagesanddisadvantages.Forexample,whiledirectgovernmentfundingofcreationbearstheriskofcarryingahiddenorexplicitpoliticalagendaor,morebroadly,theriskofendangeringdemocraticandliberalvalues,intellectualpropertyrightshavethedangeroflimitingproductionmeansandoffunctioninginacounterproductiveway,therebyconstrainingthefrontiersofintellectualproduction.

Directsubsidiesfromthegovernmentforcreationactivities,insteadofgrantingintellectualpropertyrights,willgenerateagreaterpublicdomain.Intuitively,itseemsthateconomistsoughttopreferintellectualpropertyrightstogovernmentownedcreationactivitiesorsubsidies,becausetheformerwillbetradedinmarketsandthereforetheirvaluewillbedeterminedbymarketforces.Ifnofreemarketactivityinideasandcreationstakesplace,howwillwebeabletodeterminehowmuchcreationtofinance,howmanysubsidiestogiveandtowhom?Thisisnotsuchatrivialissue.First,asexplainedabove,inorderforintellectualpropertytobetradedinmarkets,theserightsmustbeinitiallydefinedthroughcentralintervention.Thisdefinitionitselfisnotaresultoffreemarketactivity,andofcourseitwillhaveadecisiveimpactonthefuturemarketoutcomeregardingtheactualobjectsoftherights.Bycontrast,grantingsubsidiesforcreationcanbedoneonthebasisofcompetitivevariables,andtheendproductoftheseactivities–theactualphysicalproductsandserviceswhicharetheresultofcreationactivities–willbetradedinmarketsandthereforegeneratemuchmorecompetitionthanthetradingofintellectualpropertyprotectedproductsandservicesthataremonopolizedbytheirholders.Indeed,mostbasicresearchisfundedwithnodirectconnectiontoitsmarketvalueandpatentsusuallydonotcoversuchvalue.However,wearewitnessing,inrecentdecades,increasingattemptsbyresearchinstitutionstocommodifytheirresearchproducts,whichofcourseleadstotheshrinkageofthepublicdomain.Aswillbeexplainedbelow,thissortofpatentextensioncannotbeeasilyjustifiedbyeconomicanalysis.

Liabilityrulesareanotherpossibleremedytothepublicgoodsmarketfailureininformationandideas.CalabresiandMelamed35highlightedthedistinctionbetweenthequestionofwhethertoallocateatallanentitlementtoinformationandideasandthatofthedesirableformfortheirprotection.Theysettheframeworkforchoosingbetweenpropertyandliabilityrules.Thechoice,accordingtotheirmodel,shoulddependonthestructureoftransactioncosts.Forexample,theentitlementtoyourownideascanbeprotectedbypropertyrulesthatprohibitothersfrommakinguseoftheseideas,orbyliabilityrulesthatdonotbansuchuse,butentitlethecreatortosueforcompensation.

Whichofthetworemediesismoredesirable?AccordingtoCalabresiandMelamed,propertyrulesshouldbepreferredwhennegotiationcostsarelowerthantheadministrativecostsofanenforcementagencyoracourtdeterminingthevalueoftheentitlement.Insuchacase,centralinterventionoughttobeminimal,since

35. G.CalabresiandD.Melamed,‘PropertyRules,LiabilityRulesandInalienability:OneViewoftheCathedral’,85Harvard Law Review,pp.1089-1128(1972).


followingtheconstructionofthelegalrule,thepartiesarelikelytonegotiatefortheefficientendresult,adheringtoorbypassingtherule.Entitlementswillchangehandsthroughavoluntaryexchangeinthemarket,wherethegovernment’ssolefunctionwillbetopreventbypassingofthemarketthroughinjunctionsandcriminallaw.Thepersonswhoholdtheentitlementareprotectedbyapropertyrule,grantingthemarightofinjunction,whichprohibitstheinjureroruserfromcausingthemanyharm.Liabilityrulesshouldbepreferredwhenthecostofestablishingthevalueofaninitialentitlementbynegotiationishigherthanthatofdeterminingthisvaluebyanenforcementmechanism.Inaddition,liabilityrulesmightbepreferredinordertoavoidbargainingcosts.Lackofinformationoruncertaintyastothecheapestmeanstoavoidcostsislikelytopointus,accordingtoCalabresiandMelamed,inthedirectionofliabilityruleaswell.Liabilityrulesinvolveadditionalcentralinterventionbyastateorgandecidingontheobjectivevalueoftheentitlement.Inthiscase,ifthecreatorhastheentitlement,shehastherighttobecompensated,butshecannotprohibitothersfromusingit.

Oneofthefeaturesofinformationandideasistheuncertaintyastotheirvalueandtheirpossiblechangeofvalueovertime.Grantingpropertyrightsininformationalgoodsmeansthatspeculatorscanmakeafortunebypurchasingthemforamodestpriceandthenenjoyinghugeprofitsontheirfuturemarketvalue.Inaddition,incontrastwithtangiblegoodsandrealestate,itissometimesverydifficulttolocatetheownersofintellectualproperty.Thecostsoftradingintellectualpropertycanbeveryhigh,asLessig36illustrates,forexample,inrelationtotheprocessofrightsclearancenecessarybeforeanyartisticcreationbasedonvariouspreviouscreations,canbelaunched.Informationalgoods,aswementioned,arenon-rivalrous,andthismeansthatgrantingmonopolisticpropertyrightsonthemmightbelessefficientthanenablingeveryonetousethem,subjecttoappropriatecompensationpaidexpost.Liabilityrulescan,therefore,becomeinterestingcompetitorsoftraditionalintellectualpropertyrights.Usingthemmeansanenhancementofthepublicdomain,becausethosewhowanttousetheentitlementsprotectedbythemcannotbeprohibited;theyjusthavetopayfortheuse.

Inanycase,thecrucialpointhereisthatcentralproduction,subsidiesandliabilityrules,inthecontextofeconomicanalysis,shouldbeviewedassubstituteremediestothemarketfailureofpublicgoodofinformation,andthusitisnotclearatallthatuniversitiesandotherpubliclyfundedR&Dinstitutionsshouldenjoythesameintellectualpropertyprotection.ThefactthatUniversitiesrankveryhighinthestatisticsofpatentapplicationsandpatentrevenuesisinconsistentwitheconomicanalysis.Inotherwords,governmentfundedresearchandinformationproductionshouldnotenjoythesameintellectualpropertyprotectionasprivateenterprises–individualsorfirms.Likewise,intellectualpropertyprotectionoughttoberegardedasexcludingliabilityprotection.Consequently,theuse,forexample,ofthedoctrine

36. L. Lessig, ‘Coase’s First Question’, 27L.Lessig,‘Coase’sFirstQuestion’,27Regulation,No.3,38-41,2004.


ofunjustenrichmentincaseswhereintellectualpropertywasavailable,cannotbejustified.37Suchalawandeconomicsviewwillenlargethepublicdomain.

5. SOMEHIDDENASSUMPTIONSOFTHETRADITIONALLAWANDECONOMICSANALYSIS

Thetraditionaltragedyofthecommonsandtheincentivesparadigmsareconstructedonthebasisofseveralhiddenassumptions,indeedpresuppositions,intheirjustifica-tionforintellectualpropertyandtherightbalancebetweenintellectualpropertyandthepublicdomain.Thenewinformationenvironmentrequirestorevealtheseassumptionsandtoputthemunderacloserscrutiny.Thisisthepurposeofthissection.Iwillfocushereonthreeissues,beginningwiththebackgroundconceptoftheevolutionofscienceandprogress,continuingwiththestateoftechnologyandconcludingwiththebasicassumptionsastotheindividual,communityandtime.

5.1. TheorIes of Progress and The evoluTIon of scIence

Theincentivesframework,aswehaveseenabove,advocatesforlimitedpropertyrightsinintellectualproducts.Thejustificationforpropertizationofideasoriginatesfromtheneedtogenerateenoughindividualincentivestocreate.Thejustificationoflimitingtheserights(inscope,timeandpurposeofuse)originatesfromthenotionthatmorecreationandmoreprogresswillbeavailableifcreatorshaveawideravailablesourceofpreviouscreations,ideas,anddata.Thislatterrationaleisalsooneofthemajorargumentsofthosewhoadvocateagreaterpublicdomainattheexpenseofintellectualproperty.

Theimplicitassumptionbehindthisargumentisthatscientificprogressandculturalprogressaretheresultofcumulativeknowledgeandideas.Wecanplaceanotherbrickinthewallofprogress,onlyifwehaveaccesstothelayersthatalreadyexistandthusourcontributionisplacedonthetopofthebricksplacedbypreviouscreators.ThispicturematchesFrancisBacon’sphilosophyofprogressandtheevolutionofscience.Bacon(1561-1626)disputedtheancientphilosophyofscientificandartisticprogress,whichbelievedthatknowledgeandprogressaretheresultofeitherintuition(Plato)orrevealingtheconcealedbyignoringthepalpableortheobviousortheevident(Aristotle).BaconintheTreatise on theProficience and Advancement of Learning38arguedthatprogressisnotachievedbyintuitionbutbycumulativestudyoftherealitythroughexperiments.

37. N. Elkin-Koren and E. Salzberger ‘Towards an Economic Theory of Unjust Enrichment Law’,N.Elkin-KorenandE.Salzberger‘TowardsanEconomicTheoryofUnjustEnrichmentLaw’,20International Review of Law and Economics551-573(2000).

38. F.Bacon,‘TheAdvancementofLearning’,ExcerptedinBizzellandHerzberg(eds.),The Rhetorical Tradition,Boston,Bedford,1605/1990,pp.625-631.


In1962,ThomasKuhnpublishedhisinfluentialbookontheStructure of Scientific Revolutions39 inwhichhecoinedthemodernuseoftheterm‘paradigm’.KuhndisputedtheBaconiantheoryoftheevolutionofscience.Hearguedthatscientificresearchisconductedwithinasetofpresuppositionsandassumptions,whicharetakenasgiven(whatisinfactadmittedlydonebythescienceofeconomics).Thisframework,dubbedbyKuhn‘paradigm’,setsalsotheresearchagenda,directsresourcesandguidestherecruitmentofpersonaltoconductresearch.Buttheac-cumulationofresults,whichnegatethepre-supposedframework,leads,fromtimetotime,tothecollapseoftheparadigmanditsreplacementwithanalternativeone.Thus,scientificknowledgeisnotinconstantstateofprogressanditsadvancementisnotsteadyandcontinuous.Kuhndeniedthatheisarelativist,buttwodecadeslaterthePost-ModernistmovementtookKuhn’sviewstotheextremeandarguedthatthereisnoobjectivetruthorvalue.Post-Modernistclaimsbeganwithanalysisofthearts,butcontinuedwithanalysisofhistory,law,language,andindeedtheexactsciences.

WhileBacon’sperceptionofprogressfitswellintheincentivesframeworkandespeciallyintheconsiderationsinfavoroflimitingintellectualpropertyrightsonbehalfofthepublicdomain,acceptingKuhn’sorPost-Modernpremisesoughttoquestionwhetherareachandwidepublicdomainisindeedacontributiontoprogress,orthatsuchadomainactuallyreinforcesthestrengthofcurrentparadigmsinbothcultureandscience,delayingtheemergenceofnewinnovativeideaswhichcontradictconventionalwisdom.

Inthiscontext,thepossibledifferencesbetweenpost-moderninsightsandKuhn’sinsightsmightbeofrelevance.IfKuhnisnotarelativist(ashehimselfarguedinalateradditiontohisbook),thenonemustinterprethistheoryoftheevolutionofscienceaspointinginthegeneraldirectionofprogress;eachparadigmisanimprovementofpreviousones.Inthatcase,paradigmaticshiftoughttobeinstitutionallyencour-aged.Socialandlegalenvironments,whicheasesuchshift,shouldbepreferredtoalternativeones,whichmakeitmoredifficulttoshiftparadigms.Itcanbearguedthatinthecontextofthedebatebetweenintellectualpropertyandpublicdomain,therefore,Kuhn’sanalysisshouldnotsupportequivocallythelatter.Ifresearchisconductedtabula rasa,thenthechancesoftheemergenceofnewandcontradictingtheoriesaregreater,andthusthefixingofestablishedviewsislarger.Inthiscase,itcanbearguedthatlimitingaccesstoexistingideasinformofastrongintellectualpropertyregimedoesnotworkagainstprogress,asitencouragesconstantfreshandunconventionalthinking.

Thisisnotthecase,however,ifweinterpretKuhnasarelativist,orifweadoptapost-modernviewofprogress.Here,theconclusionmightbethatthechoicebetweenastrongintellectualpropertyregimeandastrongpublicdomaindoesnotmattertothelikelihoodofprogress,asprogresscannotmaterializeinanycase.Itcanbealsoarguedthatiftheseviews(inbothvariations)ofscientificprogressareaccepted,thenthesameappliestotheculturalandartisticworld.Astrongpublic

39. T.Kuhn,Structure of Scientific Revolutions,Chicago,UniversityofChicagoPress,1962.


domainwouldhavedelayingeffectsonnewfashions,newartisticschools,etc.,ifchangeisnotdesirableassuch.

Tosumup,theconventionaleconomicanalysisofintellectualpropertyanditsdesirablescope,andhenceofthedesirablesizeofthepublicdomain,presupposeaBaconiandescriptionoftheevolutionofscienceandbyderivation,thesametypeofevolutionofculture.Underdifferenttheoriesofevolutionofscience,suchasThomasKuhn’s,wemightnegatethebasicrationalesoftheeconomicanalysis.Inthisframework,thepurposeofmydiscussionwasmainlytoraisetheissue.Amorethoroughanalysisofthesequestionsismuchneeded.

5.2. The sTaTe of Technology

Thequestionoftheroleoftechnologyanditsplacewithinthelawandeconomicmodelsisconnectedtothedebateontheevolutionofscience,butisnotexactlyidentical.Inthiscontext,Iwouldliketohighlightoneaspectoftechnologyvis-à-vistheeconomicanalysisofintellectualpropertyandthepublicdomain–itsstatusasexogenousorendogenousvariable.Anoldcontroversyamongscholarswhostudytheevolutionofscienceandtechnologyrelatestothenatureoftechnologicalchange.Ontheonehand,onecanfindaratherdeterministicview,whichperceivestechno-logicaladvancesasprovokingeconomicchanges,andtherebytransformingsocialinstitutions.Evenifthisisnotstatedexplicitly,thisviewbelievesintechnologicaldeterminism,perceivingtechnologicalprogressasindependent,governedbyitsowninternallogicandmovingaheadduetoscientificbreakthroughsandmaturityofaccumulateddata.ThisviewcancorrespondtoBacon’sviewoftheevolutionofknowledge.

Ontheotherhand,onecanfindscholarswhoholdthattechnologydoesnothaveanymeaninginitself.Itsemergenceisnotmerelytheoutcomeoftechnologicalplausibility,butratherdependsonaninterplaybetweentechnologicalabilityandothersocialandeconomicfactors.Thus,massproduction,forexample,couldbeviewedasaninevitableoutcomeoftheeconomyofatoms,butcouldalsobeattributedtomajordemographicchangesduringthe20thcentury,whichledtopopulationexplosion,andcreatedthe‘masses’.Thenotionofthe‘masses’affectedbothpoliticaltheory,andtheconceptoftheself,which,inturn,createdaneedformass-producedgoods.Technologyaddressedthatneed.Inotherwords,technologydoesnotonlyaffectnewparadigms,butassumes,reflects,serves,andindeedresultsfromthem.40

Traditionallawandeconomicsmodelstakethestateoftechnologicaldevelopmentasgivenorasexogenoustotheiranalysisofthelaw.Theydonotgiveadequateconsiderationtothepossibilityoftechnologicalprogressand,moreover,tothewaytechnologychangesastheresultoftheeconomicsandlegalenvironments.Technol-ogyisactuallyabsentfromtheeconomicanalysisintwosenses:first,asadynamicparameterthatmayaffectefficiency,andsecond,asoneoftheoutcomesofapplying

40. Elkin-KorenandSalzberger,supranote9.


certainlegalrules.Obviously,technologicaladvancementsaffectefficiency.Thatisbecausethestateoftechnologydeterminestheavailabilityandcostsoftechnologicaldevicesthat,forexample,areemployedtoreduceharmfulconsequences,which,inturn,establisheswhowouldbetheleastcostavoider.Similarly,technologysubstitutelegalmeasures,includingprivateproperty,ontheonehand,andthestructureanddynamicsofthepublicdomain,ontheotherhand.

Thestateoftechnologyandespeciallythepaceoftechnologicalchangearerelevant,forexample,toDemsetz’analysisofthecreationofpropertyrightsandtoCoase’sanalysisofprotectionofentitlements.41Theywerenottakenonboardbythesetwogiantsprobablybecausethepaceoftechnologicalchangewasveryslow(relativetotoday)whentheyofferedtheiranalyses,andtheythoughtthattheevolutionoftechnologyisnotlikelytochangesignificantlyasaresultofthechoiceoflegalrules.Thisisnotthecasewiththenewdigitalinformationenvironment,wheretechnologiesareconstantlyevolvingandtheresultsofDemsetzorCoasiananalysismaybedifferentwitheachtechnologicalstateoftheart.Thepaceoftechnologicalchangeisdisputableandtherearemanywaystomeasureit.Somebelievethatthespeedofthechip,whichcurrentlydoubleseverytwoyears,isagoodmeasureoftechnologicalchange.Acommonassumptioninthehigh-techenvironmentisthattechnologyreinventsitselfeverysixtotwelvemonths,andthatemployeesmustkeepupwiththisrapidpace.Thisverybrieftimeframeandtheelasticityoftechnology,callforspecialconsiderationintheanalysis.

Thecrucialshortcomingofthetraditionallawandeconomicsanalysiswhenappliedtothenewinformationenvironmentisthatittakestechnologicaldevelopmentasstatic.Itoverlookstheinterdependencyandreciprocitybetweentechnologicaldevelopmentsandlegalrules.Thismulti-layeredrelationshipbetweenlawandtech-nologyisakeyfactorforunderstandingtechnologicalinnovationintheinformationenvironment.Thus,ananalysisthattakesthestateoftechnologyasanexogenouscomponentsuffersfromaseriousshortcomingwhenappliedtoanenvironmentwithrapidtechnologicaladvancesandinnovations.Theanalysisalsofailstoconsidertheeffectoflegalrulesontechnologicalprogress.

Coase’smaininsightisthatinaworldwithnotransactioncoststhelegalrulesdonotmatterbecauseifarule(oritsabsence)isinefficient,individualswillnegotiateandreachanefficientequilibrium.42ThesameconclusioncanbeattributedtoDemsetzwhoshowshowpropertyrightsevolve.Theywillbenegotiatedonlyiftheirabsenceisinefficientandviceversa–inefficientpropertyregimewillbethebasisofcontractualchange.However,thisanalysisassumesthatthecostsforaself-helpmechanism(likebuildingafencearoundapieceoflandwhichcanpreventeveryonefromenteringandenjoyingthefruitsoftheland)isfixedandishigherthanthecostofcreatingalegalruleandenforcingit.Likewise,itassumesthateachofthepartiesisinanequalpositiontoadvancetechnologyastheresultofthelegalrule

41. R.Coase,‘TheProtectionofSocialCost’,3Journal of Law and Economics,1-44(1960).42. Ibid.


Theabilityofonepartytoefficientlypreventharm(Coase)orprevententry(Demsetz)dependsontheavailabilityandcostsofpreventivemeasures,namelytechnologiesthatmayreduceoreliminateharmaltogetherorprevententryaltogether.Yet,theavailabilityofthesetechnologicaladvancementsandtheircostsaretreatedbyCoaseandbyDemsetzasfixedvariables.Coaseassertsthatinaworldofzerotransactioncostitdoesnotmatterifthepollutingfactoryhastheentitlementtopollute,orthattheneighborshavetheentitlementtocleanair.Iftheentitlementallocationisinefficientitwillbecontractuallychanged.However,theharmofpollutiondependsonthequalityoffilters,andthechancesoftechnologicalimprovementsofthefiltersaredifferentwhentheentitlementisallocatedtothefactoryandwhenitisallocatedtotheneighbors,astheavailabilityofthefactorytoinvestandupgradethequalityofthefiltersisnotequaltotheavailabilityoftheneighbors.

Technologiesarenottheresultofnatureorthenecessarysoleoutcomeofscientificprogress.ScientificprogressdependsoninvestmentinR&D,whichinturnislikelytohingeonthelegalregimeandspecificlegalrulesregardingpropertyandliability.Statesoftechnology,therefore,cannotberegardedasindependentfactorsandshouldnotbeexogenoustotheanalysis.Indeed,theavailabilityofcertaintechnologiesiscontingentuponvarioussocio-economicfactors,ofwhichlawisaprimaryone.

Ifwerequirethatthesteamenginesofrailwaycompaniesreleaselesssparks(Coase),wecreateademandformoreeffectivedevices.Suchademandislikelytoattractmoreinvestmentinresearchanddevelopmentofbetterdevicesandtostimulatecompetitionamongdevelopersandproducers.Largeinvestmentsandhighlevelsofcompetitionarelikelytoincreaseinnovationinspark-reducingmeasuresandpushdownthepricesofsuchdevices.Iflegalrulesunder-protectintellectualpropertythen,technologiesarelikelytodevelopwhichwillrestrictaccessoruse.Inthenewinformationenvironmentsomeprogramsmaysimplypreventthecreationofuncompensatedcopiesbyusingdigitalrightsmanagementsystems(DRMs).Usingencryptedplatforms,ownersmaytechnicallypreventthecreationofdigitalcopies,permitprintedcopies,orrestrictanyaccessorcopyingwhatsoever.

DRMscanconstituteanewregulation,applyingoriginalnormsthatdepartfromthelegislatedcopyrightlaws,thussubstitutingexistingcopyrightlawsasanormativesource.ButDRMsmayalsofunctionmerelyasenforcementmechanismsforexistingrules,makingthemmoreefficient.Ifthehardwareandsoftwareadoptthelegislatedrules,theywillpreventcopyingorchargeforcopyingwhenevercopyrightprotectionisgrantedbystatute,andallowitaccordingtotheexemp-tionsspecifiedinthelaw,e.g.fairuse.Inthiscase,thetechnologiesaremerelyanenforcementmechanismoflawenactedbytraditionallaw-makinginstitutions.However,ifDRMslimitcopyingwhenthelegislationpermitsit,technologybothcreatedanewlegalregimeandatthesametimeprovidesmeanstoenforceit.Thedistinctionbetweenthetwocoursesisnotalwayseasytoidentifyandanalyze,astherulescodifiedinthetechnologicalplatformsarenotexplicitandnottransparentasarelegislatedrules.

Theavailabilityofcertaintechnologiesisnotdeterminedbythelawofnature.Itisaparameteraffectedbyvariousfactors.Lawisoneofthem.Whereasrights


assignedbylawmaynotaffectefficiencyintheabsenceoftransactioncosts,legalrulesmaydosobyshapingthetypesoftechnologiesthatbecomeavailableandtheircost.Byfailingtomaketechnologyendogenoustotheanalysis,traditionaleconomicanalysisoverlooksthereciprocalrelationshipbetweenlegalrulesandtechnologicalprogress.

ThisshortcominginthetraditionalCoase-Demsetzanalysismightnothavebeensignificantinthephysicalworld.Indeed,thetechnologiesrelevanttoCoase’sexamplesabouttrainsandsparks,aswithregardtoDemsetz’exampleofhuntingamongNativeAmericans,werenotlikelytochangesignificantlyasaresultofthechoiceoflegalrules.Thisoversightcouldbecrucial,however,inthenewinformationworld,characterizedbyagreatpaceoftechnologicalchange,orwheretechnologyissaidtoreinventitselfeveryfewmonths.Informationtechnologiesaredynamicandconstantlychanging,andtheresultsofCoaseorDemsetzanalysismaybedifferentwitheachtechnologicalstateoftheart.Itismorefeasibletoday,therefore,thatthechoiceofsubstantivelegalrulesregardingcreationandprotectionofentitlementswouldhaveacrucialeffectonthosetechnologieslikelytobedevelopedintheshort,medium,andlongterm.

5.3. The arena – The defInITIon of communITIes, IndIvIduals and TIme

Thetwotraditionallawandeconomicsmodelstoanalyzeintellectualproperty,asallthetraditionalmodelsoftheeconomicapproach,makeimportantassumptionsregardingtheindividual,thecommunityandterritory.Theincentivesmodelseekstofindtheintellectualpropertyarrangementinwhichthetotalwelfareofthecommunityismaximized.Morepropertizationisdesirableaslongasthemarginalgainsfrompropertizationreflectedbymorecreationishigherthanthelossesfromthefactthatthesecreationsarenotavailableforfree,i.e.arenotinthepublicdomain.Thepointinwhichthegainsequalthelossesistheoptimalstateofpropertizationandthusalsoofthesizeofthepublicdomain.Notwithstandingthemeasuringproblem,therearetwoimportantvariableswhichmustbedefinedinordertobeabletocalculategainsandlosses–thecommunityforwhichthiscalculationismadeandatimeframeworkforthesecalculations.Weelaboratedontheminsection3.

Likewise,thetragedyofthecommonsexplanationfortheestablishmentofpropertyrightsassumesthatindividualswillengagenotonlyinindividualactions(withinorbypassingmarkets),butwillalsobenefitfromcollectiveactions,likethecreationoflegalrightsandtheirenforcement.Theeconomicapproach,asliberaltheoriesfromHobbestoRawls,viewsthestateasthemostimportantcollectiveorganizationorinstitution,andpresupposesthatmarketscorrespondtostates,whicharebasicallyterritorialunits.Asocialcontract,oranotherformofcollectiveaction,iscarriedoutbycitizensofaspecificterritorialunit,whichbecomesastateoranotherformofanationalunit.

InDemsetz’originalanalysis,whichfocusedonnaturalresourceslikehuntingland,oilorwaters,itwassensibletodefinethecommunityonthebasisofterritory.


Thisisnotthecasewithintellectualpropertyandapublicdomainofideas.Likewise,theimplicitassumptionoftheincentivesmodelthattheunitofmaximizationoughttobethestate(asitadvocatesintellectualpropertylawsenactedbythestate)isfarfrombeingself-explanatory.Ideascrossterritorialandpoliticalboundaries.Intellectualpropertymarketsareglobal.Intellectualcommunityactivitiesarea-territorial.

Theimplicationoftheborderlessnatureofideasoneconomicanalysisishighlysignificant.Onecannolongertakethestateastherelevantframeworkformarketactivities,fordecision-makingcalculusorforinstitutionalanalysis.Thischangeissignificantinboththenormativeandpositivedomains.Thus,whiletraditionalnormativelawandeconomicsanalysistakethestateasthebasicmaximizationunit,whichhasimplicationsonthedefinitionofexternalitiesandtheanalysisofothermarketfailures,thiscannotbethecaseinthenewinformationenvironment.Likewise,positiveeconomicanalysisistrickier,againbecausetheidentificationofmarketsislessstraightforwardthaninthephysicalworld.

Theimplicitterritorialassumptioncanbebestdemonstratedbypatentsandthepharmaceuticalmarket.Whenonecandistinguishbetweenstatesinwhichnewmedicationsaredevelopedandstateswhichareonlytheconsumersofmedications,maximizationofwelfarewillleadtototallydifferentpropertyprotectionofpatentsand,byderivation,differentsizesofthepublicdomaininthetwotypesofentities.Asaresult,arulethatreflectsglobalefficiencywillbeyetadifferentone.Whencollectiveactionisrequiredbutonlypossiblewithinthestate’sframeworkwhileitseffectsareglobal,wecanexpectincreasedrentseekingandsocialchoiceproblems,whichwilldistortanefficientruleeveninthecontextofthestate’scommunity.Untiltheeconomicmodelsestablishadefendabledefinitionofcommunitiesforwhichmaximizationisjustified,themodelswillbeanalyticallydefective.

Anothervariablethatoughttobedefinedinordertoconductmaximizationofwelfare,wealth,orutilityisatimeframework.Thedefinitionoftimeislessacutewheneconomicmodelsanalyzeresponsibilityrulesforphysicalharmorcriminallaw.Itisverysignificantwhendealingwithaproprietyregimeandespeciallywhenweanalyzeintellectualproperty.Thewholeincentivesconceptisconstructedupontheideaofseedsthatareexpectedtoblossominthefuture.Amoreaffluentpublicdomainismeanttobenefitthecommunitynot(only)inthepresent,but(mainly)inthefuture.Whatisthentherighttimeframeforsuchacalculation?Adecade?Ageneration?Takingintoaccountthenextgeneration?Again,theeconomicmodelsdonothaveacoherentconceptofthemostjustifiabletimeframeworkandthisfactisaseriousflawintheirabilitytoserveasanormativeframeworkfortheanalysisofthepublicdomain.

Thethirdimportantvariable,whichconstructsthebasisoflawandeconomicanalysis,istheindividual.Mostmodelsassumethatindividualsarerationalphysi-calentitiesandeachhasafixedsetofpreferencesorautilityfunction,whichisexogenoustotheobjectanalyzedbythemodel.Inotherwords,thesepreferencesarepre-fixedanddonotchangeastheresultofdeliberationandinteractionswithinandoutsidetherelevantmarket.Twomajorpointscanbehighlightedincontextofthisfundamentalpresupposition.Thefirstrelatestothedefinitionoftheindividual


inthenewinformationenvironment;thesecondisconnectedtothedebatebetweenliberalandrepublicantheoriesofthestate.

Thenewinformationenvironmenttransformsnotonlythenotionofcollec-tivecommunities,butalsothatoftheindividual,whoisthebasicunitforliberalphilosophyofthestateandforeconomicanalysis.Inthenon-virtualworldthebasicunitofreference–theindividual–isonepersonwithasingleidentity,passportordrivers’licensenumber,aspecificaddressanddistinctphysicalfeatures.Inthenewinformationenvironment,theatomisticunitofanalysisisausernamewithapasswordandanelectronicaddress.ThereisnostrictcorrelationbetweentheCyberianindividualandnon-virtualindividual,asthesamephysicalindividualcanappearontheInternetasseveralentities,eachwithdifferentidentificationfeaturesandadifferentcharacter,belongingtodifferentcommunities.Whileconventionaleconomicthinking,perceivesindividualpreferencesinthenon-virtualworldasexogenoustothepoliticalprocessandtotheeconomicmarkets,thenewinformationenvironmentrequiresustointernalizeeventheanalysisofindividualpreferences.

Conventionaleconomicanalysisassumesthatourbasicidentity,whichcanbeframedintermsofvarioussetsofpreferences,istheresultofdistinguishedhistorical,cultural,linguistic,andevenclimaticallydifferentbackgrounds.43Thosebackgroundfactorsarepre-givenandpredateanyformationofmarketsandcollec-tiveactionorganizations,suchasstatesorothernationalunits.Thedefinitionsofstateboundaries,however,areverymuchinfluencedbytheseancientgroupingsofpreferences.Evenifpreferenceschangeastheresultofmarketinteractions,suchassuccessfulmarketingandadvertising,theyareinitiallyfoundedupontheseancientdifferences,someofwhicharepresumablyalmostpermanent.

Intellectualproperty,especiallyinthenewinformationenvironmentcanbeviewedasthreateningthisperception,becauseitblurshistorical,cultural,national,andevenclimaticboundaries.Thedeclineofsomeofthemorephysicalattributesofonlineusersisaccompaniedbythepervasiveeffectofinformationtechnologiesonprocessessuchasindividuationandwill-formation.Theonlineinformationenviron-mentconstitutesthehumanconditionofourtime.Thecomprehensivecharacteroftheonlineenvironmentmakesindividualsmorevulnerabletoexternaleffectsthatshapetheirpreferences.Theemergenceofmedia,communications,andsoftwaremultinationalconglomeratesandtheriseofnewmonopoliesnotonlyaffecteconomiccompetitioninthemarketforordinarygoods,butalsoaffectindividualautonomy.AsphrasedbyBarber,44thenewmonopoliesareparticularlyinsidiousbecausewhilemonopoliesofthenineteenthcenturywereindurablegoodsandnaturalresources,andexercisedcontroloverthegoodsofthebody,newinformation-agemonopoliesofthetwenty-firstcenturyareovernews,entertainment,andknowledge,andexercisecontroloverthegoodsofthemindandspirit.Powerexercisedbyprivateeconomicagentsisrelevantfortheformationofpreferences.Powerfulmarketplayersthat

43. Montesquieu,The Spirit of Laws,Berkeley,UniversityofCaliforniaPress,1977[1748].44. B.Barber‘GlobalizingDemocracy’,11(20)TheAmerican Prospect(2000),online:<www.

prospect.org/print/V11/20/barber-b.html>.


controlthemeansofproducinginformationalgoodsarebetterpositionedtoexpresstheirownagendasandtherebymarginalizediversity.45

Whenpoweraccumulatedinthemarketisusedinthepublicsphere,ittendstodistortequalparticipationandreducefairaccesstoparticipationmeans.Informationalgoods,suchasnewsanddata,butalsophotoimages,music,novels,comics,orcomputerprogramsreflectanideology,andmayshapeonesidentityandpreferences.46Informationalproductsaffecttheirowndemand.Consequently,centralizedpowerinsuchamarketplacecouldbeverypowerfulinshapingpreferencesandagendasandreducingplurality,aswellassocialandpoliticaldiversity.Individualsintheonlineenvironmentarethereforecutofffromtheirhistorical,cultural,andgeographicalcontext,ontheonehand,andwidelyexposedtoarelativelyhomogenousinformationenvironment,whichaffectstheirpreferences,ontheotherhand.Indeed,aglobalizedmarketforgoodscouldbenefitfromarelativelyhomogenizedbodyofconsumers,consuminggoodsunderfairlystandardinteroperablesettings.WeareinaninterimstageofCyber-revolution.Inthefuture,theInternetmaycausethedisappearanceofdiversity,whichinthenon-virtualworldfostersthedefinitionoftheuniqueself,leavinguswithabravenewhomogenoushumanbeing.

Ifthisdescriptionistrueitalsoblursthedistinctionbetweenintellectualpropertyandthepublicdomain.Theromanticviewofthepublicdomainportraystheindividualsthereasfreerandmoreindependent.Buttheeffectofrelaxingtherigidassumptionregardingpre-fixedindividualsinteractingwitheachotherappliesnotonlytointellectualpropertymarkets,butalsotothepublicdomain.Ifouridentitiesareshapedbytheglobalinformationweconsumeandtheglobalinteractionswithothers,thepublicdomaincanbeseenascapturedbythesameforceswhichcaptureourmarkets,affecting,inthismanner,ourfreedom.

Thesecondpointconcerningtheperceptionoftheindividualinthetraditionallawandeconomicsmodelingissomehowrelated,butfocusesonthenormativevantagepoint.Liberalthinking,onwhichmostlawandeconomicsmodelsarebased,viewsmarketsandcollectivedecision-makinginstitutionsandprocessesasaimingtoaggregatepre-fixedindividualpreferences.Republicanthinkingemphasizestheneedofthedesirablepoliticalcommunitytohavenotonlytechnicalmechanismsofpreferencesaggregation,butalsoamoresubstantivecontenttothepublicsphere,whichenablesrealdeliberationandparticipationbyallindividuals.Therepublicanviewrejectsthenotionthatthedemocraticsceneisacompetitivemarketplaceofideasthatmustbekeptfreesoitcanbestreflecttheaggregatedchoiceofcitizens.Politicalinstitutions,accordingtotherepublicanview,shapepublicdiscourse,andtherebyaffectpreferences.

Preferencesareconsideredaby-productofapoliticalprocessthattakesplaceinthepublicsphereandareshapedbydeliberationorsometimesbytheinabilitytodeliberate.Thewaypublicdiscourseisstructuredaffectsthewayindividuals

45. Barber,supranote44;andNetanelN.‘CyberspaceSelf-Governance:ASkepticalViewfromLiberalDemocraticTheory’,88(2) California Law Review,395-498,2000.

46. B.Barber,‘JihadVs.McWorld,HowGlobalismandTribalismAreReshapingtheWorld’.New-York,1995.


developtheirideas,shapetheirpositions,identifytheirinterests,andsettheirpriorities.Preferencesdonotexistpriortothedeliberatingprocess,butarerathertheoutputofpoliticalprocesses.Institutionsandprocesseswhicharebasedonindividualparticipationandresponsibilities,it isargued,arelikelytoshiftself-centeredindividualpreferencesintomorepublic-regardingpreferences.ThislatterrepublicanideaisreflectedbyRousseaus’distinctionbetweenthegeneralwillandthesumofindividualwillsorpreferences(althoughitisdoubtfulwhetherRousseauwouldagreetothisinterpretationofhispoliticaltheory).

Fromtherepublicanperspective,thewayinformationmarketsarestructuredisofgreatimportanceforshapingpreferences,sincepreferencesarenotpriorandexogenoustothepoliticalprocess,butratheranoutputofthatprocess.Processesinthepublicsphere shouldbegivenabroadunderstandingtoincludealldiscursivewillformationprocessesthattakeplaceinourculturallife.47Thenewinformationenvironmentfacilitatesmoreopportunitiesforindividualstoundertakeanactivepartinthepublicsphere.Whilepublicdiscourseinthepre-Internetagewasfacilitatedexclusivelybythemassmedia,onlineexchangeallowsmoreindividualstodirectlycommunicatewitheachother.Thelowcostofcommunicationprovidesindividualswithmoreaffordableaccesstonews,largedatabases,andculturalartifacts.Digitalnetworksfurtheraffectthequalityofparticipationinthepublicsphere,enablinginteractivityandfacilitatingmoreactiveinvolvement.

Participationisnolongerlimitedtopassivelyconsumingtelevisionshowsandeditorialsofmajornewspapers.Thereareincreasingopportunitiestospeakoutandactivelytakepartinonlinedebates,byusingtalkbacks,postingonesownpositionsandanalysesinonlineforums,andchallengingtheviewsofothers.Thelowcostofproducinganddistributinginformationalgoodsandtheinteractivenatureofdigitalrepresentation,allowindividualstoparticipateincreatingtheirownculturalartifacts,publishontheirownWebpages,adoptfictionalcharacterstoreflecttheirownmeaningofpoliticalagenda,participateincollaborativewritingofonlinestoriesorreportnewstoanewsgroup.Onlinediscourse,therefore,opensupopportunitiesoftransformingthestructureofthepublicdiscoursefromthemassmediaschemeofone-to-many,toamoredecentralized,andmoredemocraticmany-to-manystructure.

Thisrepublicanvision,togetherwiththenewinformationenvironmenthasalsothesameblurringeffectsbetweenintellectualpropertyandthepublicdomain.However,replacingtheconventionallawandeconomicassumptionoffixedprefer-enceswiththeassumptionthatpreferencesareendogenoustotheeconomicandpoliticalmarkets,meansthatanyintellectualproperty-publicdomainequilibriumunderthetraditionalassumptionhastoshifttowardsagreaterpublicdomainundertherepublicanlawandeconomicanalysis.SuchashiftisParetosuperioraspreferencesareexpectedtochangetowardsmorealtruist,morecooperativenature,whichmeansthatutilityorwealthfrontierscanbeextended.

47. N.Elkin-Koren,‘Public/PrivateandCopyrightReforminCyberspace’.2(2)Journal of Computer Mediated Communication(1996),availableat:<jcmc.indiana.edu/vol2/issue2/>.


Tosumup,traditionallawandeconomicsmodelspresupposefixed,variedandexogenousindividualutilityfunctionsorsetsofpreferences.Relaxingthispresup-positionislikelytoblurthedistinctionbetweenintellectualpropertyandthepublicdomainandtilttheequilibriuminfavorofagreateroptimalpublicdomain.

6. PROPERTYRIGHTSANDTHEPUBLICDOMAINREVISITED

Sofartheanalysisinthischapter,implicitlyassumedthatpropertyrights,includ-ingintellectualpropertyrights,aretheantonymofthepublicdomainandthatthedistinctionbetweenthetwoisdichotomous–athing(land,tangible,music,book,idea)canbeeitherpropertizedorinthepublicdomain.Inthissection,Iwilltrytoshowthatthisisnotnecessarilythecase,andinparticularthat(1)propertizationdoesnotnecessarilyleadtotheshrinkageofthepublicdomain,and(2)thatadichotomouslineconnectspropertyrightandthepublicdomain,ratherthancreateadichotomy.

Letmebeginwithsomeformalisticcategorization,whichmayassistusintheanalyticdefinitionofthepublicdomain.Theantonymofprivatepropertyincludesallthethingsthatarenotprivatelyowned.Thesecanbedividedintothingsthatcannotbeowned,thingsthatareownedbythegovernment,thestateorsomeotherrulingentity,thingsthatareownedincommon(jus publicum)andthingsthatareownedsimultaneouslybyeveryone,oropenaccessregimes(res nullius).Thedifferencebetweenthetwolastcategoriesisthatundercommonownershipanydecisionregardingthethinghastobereachedbythecollectivethroughsomekindofdecision-makingprocess,whilewithres nulliuseveryonecanmakeuseofthethingorreachadecisionregardingthethingastheylike.Manyscholarsobjectingtothecommodificationtrendandadvocatingtheperseveranceofarichandextensivepublicdomainimplicitlyassumethatthecommodificationprocesstransfersthingsfromcommonownershiporfromres nulliustoprivateownership.However,themainfeaturesofthecommodificationtrendisnottheshiftfromcommonpropertyorfromres nulliusintoprivateproperty,butashiftfromthingsthatinthepastcouldnotbeownedtoobjectsofproperty.Inthissense,thereisnodirectlinkbetweencommodificationandtheshrinkageofthepublicdomain.

Moreover,underthisbroaddefinitionoftheobjectsofproperty,thepublicdomaincan,infact,expandwiththecreationorusageofprivateproperty.Consider,forexample,themosttypicalexampleofprivatelyownedproperty–land.Letusassumethatthegovernmentchangesthedesignationofparticularcommonlandintoprivateproperty,thispieceoflandissubsequentlypurchasedbyanindividualonwhichshebuildsanarchitecturalmasterpiece.Thisnewbuildingisprivatelyownedinthesensethatnoonecanenterthebuilding,useit,sellit,oreliminateitsaveitsprivateownerorunderherpermission.Butthepleasureofviewingthebuildingfortherestofthecommunity,theinspirationitcreates,itscontributiontofuturearchitecturalplanscanberegardedasanenlargementofthepublicdomain.Sodoestheenhancedeconomicvalueofpropertiesintheneighboringvicinity.Thenew


architecturemasterpiececanbethesourceofnewideasinarchitecture,thesourceofinspirationforpoetsandwritersandingeneralasourceofutilityenhancementformembersofthecommunityandeventhecauseforanincreaseinthemonetaryvaluesoftheprivatepropertiesoftheneighbors.Allthesebenefitscannotbeclaimedbytheprivateownerofthenewbuilding,thustheyarethingswhichbelongtothepublicdomain.Itisverypossiblethathadthispieceoflandbeenkeptincommonownershipordeclaredres nullius,everyonewouldhavemadeanyphysicaluseofit,butthetotalwelfareorutilityofthecommunitywouldhavebeenlower.

Toputthisideadifferently,fromalawandeconomicsperspective(definedbroadlyonthebasisofutilitymaximizationornarrowlyonthebasisofwealthmaximization),propertyrightsareamechanismtoincreasethetotalutility/wealthofthepopulationandinthispathwecanresorttoDemsetzandhisexternalitiesanalysisoftheemergenceofpropertyrightsortotheincentivesmodel,andportraythepublicdomainascomprisingalsopositiveexternalitiesfromprivateproperty.Thepublicdomain,therefore,shouldnotberegardedastheantonymofprivateproperty.

AsecondargumentIwouldliketoputforwardisthatbetweenprivatepropertyandthepublicdomain,thereisadichotomouslineratherthanadichotomy.Thefavorablereceptionofthefirstargumentregardingtherelationsbetweenprivatepropertyandthepublicdomainimpliesinitselfthatthesecondargumentalsoholds,butIwouldliketoaddanotherangletowhatwasarguedabove.Propertyright,orownership,isanestablishedlegalconcept,but,infact,thisrightisanabstractconcept,whichincludesabundleofparticularrightsrelatedtoitsobject.Thefivemaincomponentsofprivateownershipareaccess,withdrawal,management,exclusionandalienation.48Thereisnoobviousreasontoconsiderautomaticallythewholebundleofrightsinthecontextofthebattlebetweenpropertyandpublicdomain.

Indeed,theAmericancourts’rulingsregardingcommonresources,suchasoil,gas,andpublicwaters,developedamorecomplexallocationofrights.Forexample,courtsruledthat,whileindividualshavetherighttodrillontheirprivatepropertyandthattheretrievedoilisownedbythem(althoughitssourceisacommonpoolbelowalltheprivatepropertiesaround),theyarenotallowedtoalienatetheoilandwillbeliablefordamagesfordoingso.49Thisruling,infact,createsarightthatincludesexclusiveaccessandwithdrawal,commonmanagementandnorighttoalienation.Thisisanexceptiontothegeneralperceptionoffullprivatepropertyasathickandintegralconcept.

Itispossiblethattransactioncostswerethemainreasoninthepastnottobreakuptheconceptofpropertyintoitsdifferentcomponents,orrathertogroupthoserightsunderacommonlegaltitleinthefirstplace.Inthenewinformation

48. E.Ostrom,’PrivateandCommonPropertyRights’,IIEncyclopedia of Law and Economics,2000,online:<encyclo.findlaw.com/2000book.pdf>.

49. R.Epstein, Takings – Private Property and the Power of Eminent Domain,Cambridge,Mass.,HarvardUniversityPress,1985,p.221.


environmenttransactioncostsaresignificantlylower.50Moresophisticatedandfinetunedenforcementmeasuresareavailablethankstoinnovativetechnologies.Itmightbeaninterestingexercise,whichisbeyondthescopeofthischapter,toexaminethejustificationofeachofthecomponentseparatelyanditsoptimaldegreeofpropertization.Forexample,theoptimaldurationofeachoftheserightsmightbedifferent.Whilerestrictionsonaccessarethemostheavy-handedmeasurevis-à-vistheimplicationsontheflowofideasandthesourcesfornewcreations,management,exclusion,andalienationarelessharmful.Ontheotherhand,fromthepointofviewoftheindividualincentivestocreate,allowinggreateraccess(forexamplebyawidedefinitionoffairuse)mightposeaminordisincentivetocreateincomparisontoallowingmanagementoralienation.

Thebreakageofthefullpropertyrightintodifferentcomponentsisnotonlyanormativeanalysisoftheboundariesbetweenintellectualpropertyandthepublicdomain;itcanbeanalyzedinthepositivelevel.Projects,suchasCreativeCommons,infact,breakthefullprivatepropertyrightintosub-components,usingcontractualtools.Again,thedecreaseoftransactioncostsinthenewinformationenvironmentenablesthesedevelopments.Inlawandeconomics’eyes,thesedevelopmentspointtoinefficiencyofthecurrentlegalarrangements,butthegoodnewsisthatreducedtransactioncostsbringsusclosertoCoasianefficiency,intheshadowofthelegalrules.

7. CONCLUSION

InthischapterItriedtoshowwhytheeconomicanalysisoflawisausefulframeworktoanalyzethepublicdomaininthecontextofthecontemporarydebatebetweenitssupportersandthosewhobelieveingreatercommodification.Onapositivelevelofanalysis,lawandeconomicscanexplainwhywearewitnessingchangesinintellectualpropertyrightswithincreasedtechnologicalchange,asisthecasewiththeinformationrevolutionofthelastdecade.Inthisrespect,Demsetz’tragedyofthecommonsframeworkcanbeahelpfulmodel.However,publicchoiceanalysiscanshedadditionallightonthecontemporarychangesanditpredictsthatthelegislativeandjudicialdecision-makingwillleadtonon-optimalarrangementsinfavorofintellectualpropertyrightsandagainstthepublicdomain.Positivelawandeconomicanalysiscanalsoexplainthevariousprivatecontractualenterprises(suchasCreativeCommons),tryingtobypassthelegislativeandjudicialarrangements,especiallyinthelightofpublicchoicepredictionsthattheofficialarrangementswillbeinefficient.

Onanormativelevel,wefocusedontheincentivesparadigm.Wesawwhyaccordingtothetraditionalanalysislawandeconomicsscholarsshouldnotbeinfavorofunlimitedcommodificationandwhythepublicdomainhasanimportant

50. N.Elkin-KorenandE.Salzberger,‘LawandEconomicsinCyberspace’,19International Review of Law and Economics553-581(1999).


functioninthepathtoachieveefficiency.Lawandeconomics,therefore,cannotbeseenasaprocommodificationmovementandincomparisontodeontologicalrationales,suchasnaturallaw,itadvocatesforaviableandmeaningfulpublicdomain.However,wealsofocusedonsomeofthetraditionalpresuppositionsinthetraditionallawandeconomicmodels,therelaxationofwhichcanevenshifttheoptimalsolutionsvis-à-vistherightbalancebetweenintellectualpropertyrightsandthepublicdomainevenfurtherinthedirectionofthepublicdomain.Suchpresuppositionsarethedefinitionoftherelevantcommunityforwhichweseekefficientrules,andindeedtheassumptionregardingindividualsandtheirutilityfunctionsorpreferences.

Finally,itwasarguedthatthepublicdomainisnottheantonymofintellectualpropertyrights.Expansionofintellectualpropertyrightscanleadtotheexpansionofthepublicdomainandviceversa.Moreimportantly,propertyisabundleofrightswhichweretraditionallytreatedinaunifiedframeworkduetohightransactioncostsofseparation.However,thenewtechnologicalrevolutionenablestheseparationoftraditionalpropertyrightsintoitsdifferentcomponents,allowingamorecomplex,yetmoreefficient,regulatoryregime,whichwillalsoleadtoagreaterpublicdomain.Manyofthischapter’sinsightsareonlyappetizersandrequireamoresophisticatedstudyandelaboration.Butifitpromptsempiricalresearchandtheoreticaldiscussion,itspurposewouldbewellserved.

chapter iii economic analysis of the public...

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