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http://ssrn.com/abstract=1514137
 
 

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The Social Efficiency of Fairness


Gavin Clarkson


New Mexico State University - Department of Finance; Rice University - Jesse H. Jones Graduate School of Business

Marshall W. Van Alstyne


Boston University - Department of Management Information Systems; Massachusetts Institute of Technology (MIT) - Sloan School

October 25, 2014

Gruter Institute Squaw Valley Conference – Innovation and Economic Growth, 2010
Boston U. School of Management Research Paper No. 2009-11

Abstract:     
Property rights provide incentives to create information but also incentives to hoard it before award of protection. Even after award, others who might supplement that idea lack bargaining power until they too secure property rights. An unintended consequence is to slow, not hasten, progress when innovation hinges on combining disparate private ideas.

We show formally that fairness can increase innovation. Welfare improves both in the absolute sense of enabling new projects and in the relative sense of reordering projects that people undertake. Second, in contrast to models of "other regarding'' preferences, we show how self-interest alone is sufficient to justify fairness in a one-time encounter. Third, we show how the hold-up problem is worse for information than for tangible goods. Fourth, we sketch a practical way to promote fairness using liability rules rather than property rights. Liability rules give idea-developers greater flexibility and incentives while protecting idea-originators from exploitation.

Number of Pages in PDF File: 34

Keywords: Intellectual Property, Governance, Information Asymmetry, Innovation, Fairness, Shapley Value, Incentives, Contracts, Mechanism Design

JEL Classification: A13, D23, D45, D8, K11, K12, O31, O34, P16

working papers series





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Date posted: November 28, 2009 ; Last revised: November 6, 2014

Suggested Citation

Clarkson, Gavin and Van Alstyne, Marshall W., The Social Efficiency of Fairness (October 25, 2014). Gruter Institute Squaw Valley Conference – Innovation and Economic Growth, 2010 ; Boston U. School of Management Research Paper No. 2009-11. Available at SSRN: http://ssrn.com/abstract=1514137 or http://dx.doi.org/10.2139/ssrn.1514137

Contact Information

Gavin Clarkson
New Mexico State University - Department of Finance ( email )
Las Cruces, NM 88003
United States
575-646-3636 (Phone)
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
Marshall W. Van Alstyne (Contact Author)
Boston University - Department of Management Information Systems ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)
HOME PAGE: http://smgapps.bu.edu/mgmt_new/profiles/VanAlstyneMarshall.html
Massachusetts Institute of Technology (MIT) - Sloan School ( email )
Center for Digital Business
5 Cambridge Center - NE25, 7th Floor
Cambridge, MA 02142
United States
617-253-0768 (Phone)
HOME PAGE: http://web.mit.edu/marshall/www/home.html
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