Why Patents May Be Inefficient In Emerging Markets — An Economic Analysis

from the lots-to-think-about dept

One of the things I’ve had trouble understanding is why some strong “free market, anti-government regulation” types are so in favor of strong intellectual property laws. It seems like the opposite of their position. Intellectual property laws, by their very nature, involve government regulations granting a full monopoly to one individual or company. However, there’s this ongoing belief that the incentive of intellectual property protection is necessary to ensure creation — even if increasing evidence shows that isn’t really true. However, it’s an area that could certainly use more feedback from an economic perspective, and it looks like more thoughtful analysis is on the way. Ed Felten points to Tim Wu’s latest paper that tries to create a model for determining a beneficial outcome to intellectual property laws from a more economic viewpoint. The paper is a bit on the academic side, but still worth a read. There are some ideas that seem a bit simplified and could use further analysis (which is likely forthcoming, either from Wu or someone else), but it notes that with emerging markets, intellectual property laws make the least sense — because you want to encourage as much widespread experimentation on new ideas as possible, so the real market innovation can take place and the overall economic benefit is increased. That is, just having a new idea or invention (what gets patented) doesn’t mean it’s really marketable. But, but letting everyone build off of the idea and create something that truly contributes to the economy, a better economic result occurs. This is also why bubble investing can be a good thing for the overall economy. It’s a better, more efficient way to test out a lot of ideas quickly in an uncertain market. Yes, there are some losers, but the overall economy is better off. Patents, however, tend to limit those emerging markets by putting up inefficiencies in the way that make it much more expensive to experiment with the new ideas and find a way to market them. This idea isn’t just backed up by theory — but in practice as well. It’s why the economies of the Netherlands and Switzerland both developed much faster in a time when they had no patents. It’s good to see a more thorough exploration of these ideas — and hopefully some of it will eventually sink into the heads of policy makers as well.

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Comments on “Why Patents May Be Inefficient In Emerging Markets — An Economic Analysis”

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John says:

Re: Misrepresentation

Man. Do you ever post anything with an ounce of understanding what you’re talking about?

Trademark infringement is something that’s totally different, involving confusion of brand — which has nothing to do with things like patents. But, of course, why would you bother to understand the difference. That would make your post on topic and you never do that.

Mr. Econotarian (user link) says:

No Subject Given

Looking at the particular example of patent laws, especially for products whose up-front costs are much higher than production costs (such as drugs), the greatest risk is not that unlicensed production in developing countries will lead to economic loss, but that unlicensed production in developing countries will be shipped back to developing countries, greatly depressing the returns on research investment.

On the other hand, what happens if someone in a developing country comes up with a patenable good that will sell very well in a developed country? Then that inventor may lose out to unlicensed producers in the developing country who export to a developed country.

I do agree though that intellectual property law should not be absolute and trade-offs need to be carefully looked at. I think that many developed countries have over-specified the optimal level of intellectual property laws, especially when it comes to copyright length.

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