Intellectual Property and the Incentive Fallacy

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Citation: Eric E. Johnson Intellectual Property and the Incentive Fallacy. Florida State University Law Review (RSS)


Tagged: copyright (RSS), patents (RSS), intellectual property (RSS), law (RSS), economics (RSS)


The theory that without incentives, intellectual goods will be under-produced has been the main argument used to justify copyright and patent entitlements. The author writes this theory is historically, theoretically, and empirically wrong. Historically, copyright and patent started as instruments of royal censorship and revenue generation, furthermore, author-held copyright was put in place before Smithian economics existed to provide the incentive theory. Theoretically, behavioral economics has demonstrated that intrinsic motivations are important drivers of creative work, and that extrinsic motivation can be de-motivating. Empirically, the behavior of potential copyright holders when formalities were required (most did not add a copyright notice) and of people sharing work on the internet each undercut the incentive theory.

Author argues that copyright and patent entitlements are not economically justified (but perhaps not unjustifiable) and should be sunset (the laws themselves, not the restriction of individual works with limited terms) in favor of industry-specific restrictions where those can be economically justified.

Theoretical and practical relevance:

Author's closing paragraph: "More and more of the worldwide economy is moving to intellectual production. How that production is regulated, and whether it is encouraged or discouraged by intellectual property law, will have a vast effect on overall levels of wealth and standards of living. Our collective misapprehension over the economics of innovation and creativity has no doubt already done incalculable mischief. Going forward, it becomes progressively important to get the policy right, even if that means scrapping it and starting over."