Sunday, August 22, 2010

When is no copyright optimal?

My last post carries an implicit question: when is it optimal to have no copyright law?

First, let's examine a (fallacious) argument for why copyright is always a good idea. It proceeds as follows: suppose that someone would release a work in the absence of copyright law. Then they can already release that work without copyright today; the law doesn't force them to protect it. Hence copyright can only be beneficial—it preserves the copyright-free content while incentivizing the creation of additional content.

The fallacy here, of course, is that sometimes people who would release a work even without copyright protection still prefer to use copyright when given the choice. If open source content is better for overall welfare than equivalent copyrighted content—a likely proposition—then if this group of people is big enough, copyright may be a net negative after all.

When might this happen? First we have to consider what induces people to create non-copyrighted content. The possibilities include:
  1. They are able to capture monetary returns from content even when it is legally unprotected. This is surely the case in the fashion industry, where a "first mover" benefits from setting a trend even if a horde of copycats swiftly follows.
  2. They derive non-monetary returns from content. Perhaps they just enjoy the process of creating content, or sharing it with the wider world. This blog is an example: I freely share my writing (even without ad revenue) because I enjoy swapping opinions with others and seeing my ideas discussed elsewhere.
My sense is that the abolition of copyright is only reasonable (although not necessarily optimal) when (1) predominates rather than (2). Under (1), where returns are monetary, it's likely that many content producers would still prefer to have exclusive rights to their content. Hence, with copyright, we'd see many producers switch from making copyright-free content to making similar copyrighted content—which, as I observed above, is necessary for no copyright to be socially optimal.

Under (2), however, the interest of the content producer is often already to spread content as freely and widely as possible. If I'm writing essays in a copyright-free world because I want to make my views more popular (or bolster my reputation), it doesn't make much sense for me to exercise copyright even when it's available.

It's still possible, of course, that someone with these interests would choose opt for copyright once it became possible. Maybe I'm writing a book that will be wildly popular and massively enhance my reputation regardless of whether I make it freely available. Then I would still write (for reputation purposes) in a world without copyright, but I'd choose to extract profits from my work once copyright law allowed me.

This seems much less likely, however, than the corresponding situation in (1). My tentative conclusion is that abolishing copyright only makes sense in fields where there is a large monetary incentive for copyright-free production. Am I missing anything?

7 comments:

Jabaluck said...

I don't follow. It's true that the costs of copyright law come from people who claim copyright protection but would innovate regardless of whether they had this protection. You seem to be saying that in situation 1) more people are likely to claim copyright protection who would invent anyway than in situation 2), and so copyright law is potentially more desirable in situation 2).

But this doesn't follow. It doesn't follow because the stakes from copyright law are just lower in situation 2). The costs of copyright law are lower because fewer people opt to use it who would invent anyway, but the benefits are also lower because the fact that no one wants it implies that it has little impact on ex ante incentives. Likewise, if 1) predominates, having copyrighted content might still dramatically increase the monetary return and therefore the incentives to invest even if the costs are also larger.

So in every case the decision of whether to have copyrighted content or not turns on the value of the marginal goods that would otherwise go uninvented vs. the cost of the static distortion (which depends on the slope of the demand curve) and the cost from lost future innovations that would derive from the present innovation in a non-copyrighted world. I don't see why 1) or 2) affects this trade-off in an obvious direction, but perhaps I'm missing something as well!

Jason

Matt Rognlie said...

I agree with much of what you say, which is why perhaps I should have framed this post more clearly as a post about necessary conditions for no copyright to be optimal rather than sufficient conditions. (I vaguely aimed in that direction with the "makes sense" phrasing, as something that "make sense" may nevertheless not be optimal. But that wasn't very precise.)

I'm not sure, however, about the idea that the stakes from copyright law are lower in situation (2). Consider three groups of authors:

A. Authors who will publish their works sans-copyright whether copyright exists or not, because they are motivated by strong non-monetary considerations.

B. Authors who will publish their works in a world with no copyright, but who will choose copyright if it is available. (One complication here is that even if authors copyright their works, non-monetary considerations may cause them to set a price well below the profit-maximizing monopoly price.)

C. Authors who will only publish their works in a world with copyright.

I see myself in this post as claiming that (B) is probably a small group relative to (A) and (C). Moreover, those in category (B) may opt for prices far below the typical profit-maximizing price charged by authors interested in money, putting them effectively in category (A). Since the efficiency of copyright depends on the relative importance of (B) and (C), I conclude from this claim that copyright is probably efficient for books.

Of course, this isn't a proof -- it's just intuition about relative magnitudes that should really be determined empirically, and it might be completely wrong.

One problem might arise if authors who are motivated by nonmonetary considerations are mainly driven by reputation, and if selling N/10 books at $10 actually boosts your reputation more than "selling" N books at $0.

Matt Rognlie said...

By the way, I forgot to mention in my last comment why the framework I provide is even relevant to my argument that the stakes aren't lower in (2). The idea is that (B) doesn't necessarily say anything about (C) -- a world where (B) is very small but (C) is very large seems plausible and even likely to me, although again this is an empirical question.

Jabaluck said...

I'm not totally convinced, but I think we're close to agreement: I agree that everything hinges on the relationship between B) and C) under scenarios 1) and 2) and that this is ultimately an empirical question. What I'm still not understanding is what you see as the source of the disconnect between B) and C) in scenario 2). In particular:

i) In your world 2), people have a non-monetary reason NOT to claim copyright protection (they want their writings to be disseminated), and so we suspect that group B) is smaller than if the non-monetary incentive did not exist

But:

ii) To the extent that people have a non-monetary reason not to claim copyrights, the set of people who would be incentivized by copyright law to innovate when they otherwise wouldn't will be smaller as well. If authors care about having their books widely disseminated and copyrights inhibit this, then the additional incentive to write provided by copyrights is smaller.

You seem to have some intuition about the relative magnitude of i) and ii), believing that i) is likely to be more relevant. Is there some reason for this? My initial claim about the stakes being lower in situation 2) would suggest that adding non-monetary incentives not to get copyrights would cause B) and C) to scale proportionately - this is not obvious to me either in retrospect, but I guess I don't have a strong intuition one way or the other.

Darf Ferrara said...

David Friedman has an interesting podcast on the history of copyright law and some of the economics behind it. He mentions that he makes much of his own material available free of charge because he makes money on speeches and letting his writings out for free more than compensates for his loss in sales of the copyrighted material.

I think that one simplification that you are making that becomes important is that copyright enforcement is costless. This becomes especially important as big corporations lobby to pass protections for themselves.

Matt Rognlie said...

Jason:

I think you get at the heart of the matter when you say:

"My initial claim about the stakes being lower in situation 2) would suggest that adding non-monetary incentives not to get copyrights would cause B) and C) to scale proportionately - this is not obvious to me either in retrospect, but I guess I don't have a strong intuition one way or the other."

I'm implicitly supposing that there is a great deal of heterogeneity among authors: some care about non-monetary rewards and some don't. If someone cares about non-monetary rewards enough to publish a book absent any monetary returns, I'm guessing here that he will either (I) publish it for free even when monetary returns are possible through copyright or (II) publish it for a price much lower than the profit-maximizing price, because non-monetary rewards scale with the size of the audience. People who only care about money, on the other hand, will fall into group (C).

(Arguably here I'm splitting the universe of potential authors into two discrete categories when a much richer continuum is called for. My intuition is not good enough to say what happens when we model the distribution of nonmonetary rewards in various alternative ways. Maybe B would be a lot bigger than I think -- this also depends on the functional form of the relationship between nonmonetary rewards and audience.)

My other thought is that the existence of no-copyright monetary rewards changes how the distribution of non-monetary concerns maps onto categories A, B, and C. People who only care about money, who in the case of books would fall into category C, may now be in categories A or B instead. People who would otherwise be in category B may move to A. Formally the impact here on the comparative magnitudes of B and C is unclear, but if you suppose that most people care more about money than non-monetary rewards (this seems to be a key assumption lurking somewhere in my intuition), I think that the introduction of non-copyright monetary return shrinks C more than B, improving the position of no copyright from a social perspective.

But yes, this is really imprecise and intuition is failing me here. This seems like a good example of why formal microeconomic theory is important -- otherwise I end up writing lots of awkward prose that approximates (often incorrectly) some kind of implicit mathematical model.

(Random aside: one important difference between monetary and nonmonetary rewards that I haven't mentioned yet is that while contracts with publishers can smooth the risk a little when someone writes a book for monetary reasons -- the author will get an advance -- this is either impossible or much less practical for nonmonetary rewards.)

Matt Rognlie said...

Darf Ferrara:

I agree -- this is a definite simplification on my part. These issues are really difficult to model, because you have both (1) the direct costs of enforcing copyright and (2) transaction costs preventing surplus-creating projects with copyrighted works. For instance, it might be optimal for all parties to arrange a deal where older copyrighted works republished or remixed for a low price -- but this would involve tracking down individual copyright holders and negotiating contracts, no small task.

In general, I think that these problems can be mitigated by having shorter maximum copyright terms and charging a fee every few years to maintain a copyright.