The Economics of Copyright

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One of the problems with the debate around copyright is that it is often fuelled more by feelings than facts. What is sorely lacking is a hard-nosed look at key areas like the economics of copyright. Enter “The Economics of Copyright and Digitisation: A Report on the Literature and the Need for Further Research” [.pdf].

As you can tell from the rather tentative title, this is just a first step, but it is an important one, and the UK's Strategic Advisory Board for Intellectual Property Policy (SABIP) is to be congratulated on commissioning it. This is exactly the kind of thing that it should be doing – not simply taking political positions, but establishing the basis for rational debate before then moving on to the framing of appropriate legislation.

Here are some of the key points from the summary:

A first essential insight of the economics of copyright is that copyright relates to a trade-off. On the one hand, standard economic theory predicts that in a free market, fewer creative works would be supplied than would be socially desirable. A copyright system may mitigate this problem. On the other hand, economic analysis implies that, like any statutory intervention, copyright entails costs in addition to its intended benefits. An important aspect of these costs is that copyright restricts the use of protected works, including use for follow-up creations.

The short-run and long-run effects of copyright may differ substantially. In the short run, copyright benefits rights holders at the expense of users. In the long run, the benefits associated with any additional supply due to copyright protection may more than offset the access costs of users so that copyright may offer a net welfare improvement for all stakeholders (i.e. a Pareto improvement).

This long-run perspective provides no comprehensive, general case for copyright, however. Because users include follow-up creators, copyright is not unequivocally beneficial to creators and excessive copyright protection could even diminish the supply of copyright works. Even if one were to disregard consumer interests – for example in some natural rights perspectives – an efficient copyright system still has to strike a balance between divergent interests.

There's no pretending this report is light reading, but I do think it represents an important statement about the need for basing copyright law on empirical evidence. Against the background of blatant lobbying during the passage of the Digital Economy Act, that surely has to be good news for everyone – whether or not they are copyright geeks.

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