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.
30 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 31
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.
32 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 33
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).
34 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 35
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.
36 Eli M. Salzberger
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.
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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.
38 Eli M. Salzberger
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
Economic Analysis of the Public Domain 39
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.
40 Eli M. Salzberger
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).
Economic Analysis of the Public Domain 41
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.
42 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 43
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).
44 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 45
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.
46 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 47
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.
48 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 49
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
50 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 51
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
52 Eli M. Salzberger
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>.
Economic Analysis of the Public Domain 53
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.
54 Eli M. Salzberger
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/>.
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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
56 Eli M. Salzberger
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.
Economic Analysis of the Public Domain 57
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).
58 Eli M. Salzberger
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.