By Simon Grey, on July 26th, 2011
Similarly, the kinds of innovation activities and intellectual property rights that make sense depend on available institutions and technologies. I’m happy to admit that today intellectual property (IP) is not obviously a good idea. Such property can create large “anti-commons” transaction and enforcement costs that greatly raise the cost of combining old ideas into valuable new ideas. Such costs often outweigh the social benefits of the incentives to create IP, in order to sell it. Today, it is often better to rely on other social incentives to innovate, incentives that don’t require such expensive support.
But if true, this is a sad fact about our limited abilities, not a fundamental natural law or right. You have no fundamental right to enjoy the innovations produced by others without compensating them. You owe them, at least your gratitude. Yes for now it may be best to let you take innovations freely without paying, since the alternative seems too expensive. But you have no right to expect that situation to last forever, any more than ranchers had a right to expect they could forever let their animals trample nearby farms.
The problem with Hanson’s comparison of IP rights to real property rights is that intellectual production is not tangible whereas real property is, and one can adapt another’s idea without in any way diminishing its usage by its originator. As Jefferson aptly observed centuries ago, as it is possible to use another’s candle to light one’s own without diminishing the other’s flame, so too can one use another’s idea as one’s own without diminishing the other’s usage of their idea. Taking another person’s ideas and using them does not any way prevent him from using his own ideas in whatever way he sees fit. Since using another’s ideas does not trample upon his rights, it is absurd to compare this to cows trampling a neighbor’s fields. Using an idea is not inherently deprivatory in the way that using property is, and so the comparison is false.
At any rate, since ideas are not tangible, there is no conceivable limit to their spread save for demand. Basically, demand, not supply, is the limiting factor for the production of any given idea and, as such, there is no need for prices or any other limitation of ideas. Prices indicate scarcity relative to demand, and attempting to attach prices to ideas is essentially an attempt to attach scarcity to ideas. Since there are an infinite number of ideas and production costs of ideas are close to nil (or at least so close to infinity and nil respectively that the upper bound makes a price schedule impossible), the only effect that bringing costs to ideas would be to limit something that is naturally unlimited.
Also, note that Hanson’s claims that “you have no fundamental right to enjoy the innovations produced by others without compensating them” and “you owe them, at least your gratitude” are both spurious. The first is false, but only because of how he qualifies it. He is correct in saying that no one has the right to enjoy the innovations of others. No one has the right to anything save for life, liberty, the pursuit of property, and any derivatives thereof. But it does not stand to reason that anyone deserves to be paid for what they produce, whether it be an idea or a physical object. Quite simply, no one has a right to an income of any sort. If you wish to be paid, convince consumers that you deserve it, whether it be on the technical merits of your product or whether it be on the ease of purchase relative to the cost of piracy. In keeping with this, if one does not have a right to income for producing something, then one certainly does not deserve gratitude either. Again, if a producer wants something from consumers, he must make or do something that causes consumers to respond favorably.
As can be seen, Hanson’s argument is riddled with plenty of intellectual errors, leading to erroneous conclusions. He would do well to simply acknowledge that IP is a myth, and that no one is inherently deserving of anything just because they happened to produce something.
By Ajay Shah, on February 7th, 2011
Raghuram Rajan has an interesting piece on what went wrong with the economics profession in the years that led up to the global crisis. His big issues: specialization, the difficulty of forecasting, and the disengagement of much of the profession from the real world.
I think these, in turn, are directly related to the incentives of academic publishing. It’s a recurring theme in agency theory: When the principal rewards the agent for performance in a certain direction, an excessive focus upon that comes about, and performance in other directions gets contaminated. When universities created an incentive structure linked purely to peer-reviewed journal pubs, economists focused on performing for each other, instead of performing for the world.
So in our diagnosis of the crisis, just as we criticise the HR policies of banks, we should also criticise the HR policies of universities.
While I’m quite aware of the narrowing of the mind that comes about from the Western-style process of focusing on pubs and tenure, it is not easy to find an alternative HR framework. George Stigler had a fascinating little article on this (which I was unable to find: do you know it?).
In India, in particular, the economics profession suffers from the twin maladies of low pressure and the historical baggage of development/socialist economics. On average, if an Indian economics department was given strong incentives to publish more, it would be an improvement. Performing for economists is better than not performing. At the same time, on the scale of mankind, it does seem that economists need to do more in terms of performing for the world.
Why does the publishing+tenure process work well in science and engineering? I have an opinion of one element that is in play there. In science and engineering, bringing in resources through research contracts is essential for doing research because research requires expensive equipment, staff, etc. There is, then, a joint production of academic publications alongside performing for the world (which allocates research funding). Hence, when the principal asked for academic publications, this did not generate a closing of the mind. In contrast, most research in economics in the top departments worldwide does not require bringing in external funding. So that source of pressure for performing for the world is absent.
 
By Winton Bates, on July 16th, 2009
The life events I propose to discuss here are things like major improvements or worsening in financial situation, getting married or divorced, having a child, serious personal injury, death of a spouse, being made redundant and change of residence. I will focus on subjective well-being, as measured by surveys which ask people for a numerical rating of their satisfaction with life.
One way to compare the impact of life events on well-being is to calculate what change in income would have an equivalent impact after controlling for other factors. Some readers might recall research findings for the U.S. and Britain which suggested that the increased income equivalent of a lasting marriage is around $100,000 and an increase in income of around $60,000 would be required to compensate for the loss in well-being associated with becoming unemployed. (These numbers come from some pioneering research by David Blanchflower and Andrew Oswald published in 2000.)
There are several problems with the methodology of this early research which tend to overstate the income changes equivalent to life events. First, the methodology is based on estimates of the (small) impact that higher incomes have on current well-being without taking account of the impact of higher incomes on future well-being. Higher incomes enable the wealth accumulation (and the redistributions through tax and welfare systems) that make it possible for people to maintain their well-being during periods when earning potential is diminished (e.g. during retirement) or when they incur heavy costs or heavy costs are incurred on their behalf (e.g. education and medical expenses).
Second, the methodology focused on the impact of being in a particular state (e.g. married or unmarried) rather than on the duration or timing of the effects that life events have on well-being. Life events typically have large impacts on life satisfaction for only a relatively short period.
Third, the methodology was unable to distinguish causation. For example, it was unable to assess whether married people are happier than unmarried people because marriage tends to make people happy or because happy people are more likely to get married.
Research in this area has progressed a great deal in recent years, with the use of ongoing surveys that enable changes in the well-being of the same sample of people to be linked over time to life events. The HILDA survey (Australian data) shows that the events with the greatest positive effect on life satisfaction for both males and females included a major financial improvement in the past three months, having been married in the last three months and birth of a child (less than nine months ago). The events with greatest negative effect on life satisfaction included being detained in jail, a major financial worsening at any time in the last year, a recent separation from a spouse or partner and recent death of a relative or family member.
A recent paper by Paul Frijters, David Johnston and Michael Shields estimates the one-off windfall improvement in finances needed to compensate for various life events (‘Happiness dynamics with quarterly life event data’, DP 3604, IZA, July 2008). The windfall approach seems preferable because a comparison of the effects on current well-being of different life events avoids the conceptual and measurement problems of attempting to compare the effects of life events with the effects of differences in income levels.
The authors obtained the following estimates of compensating windfall financial gains for various life events:
Death of spouse/ child: + $178, 300
Serious personal injury or illness: + $ 59,200
Change of residence: – $ 53,000
Birth or adoption of child: – $ 18,300
Marriage – $ 16,500
Separation from spouse or partner: +$ 14,900
Fired or made redundant: + $ 6,900
Victim of property crime: +$ 2,700
(Currency: Australian dollars; $A1 = about $US 0.80. Assumed discount rate = 5% ) .
I should note that these compensating windfall estimates are additive. For example, a person who is fired might become separated from his or her spouse and experience a major financial worsening at the same time.
It seems to me that the magnitude of these estimated compensating windfalls generally make a lot more sense than do the much larger estimates of income-equivalents of life events. Nevertheless, I feel uneasy about the idea that the life satisfaction of people who suffer the death of a spouse or child would be unaffected, on average, if they received a windfall gain of around $A 178,300 at the same time. Can any amount of monetary compensation actually be sufficient to enable life satisfaction to remain unaffected while a person is mourning the loss of a loved one?
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