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http://ssrn.com/abstract=1514137
 
 

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The Social Efficiency of Fairness


Gavin Clarkson


NMSU - Finance Department / Indian Resource Development Program

Marshall W. Van Alstyne


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

November 26, 2009

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 they also provide incentives to hoard it prior to the award of protection. All-or-nothing rights, in particular, limit prior sharing. An unintended consequence is to slow, not hasten, forward progress when innovation hinges on combining disparately owned private ideas. In response, we propose a solution, based on a reward defnition of "fairness," that unblocks innovation by increasing willingness to share private knowledge.

We present four arguments. First, we show that fairness can increase the rate of innovation. Welfare can improve both in the absolute sense of enabling new projects and in the relative sense of reordering the social sort order of which projects individuals prefer to undertake. Second, in contrast to models of "other regarding" preferences, we show how self-interest alone is suffcient to justify fairness in a one-time encounter. Third, we show how this problem is more acute for information than for tangible goods. Fourth, we argue that liability rather than property rules can be more conducive to innovation based on information reuse and recombination.

This work has application to newspaper business models, Google book search, biotech gene sequencing, and other industries where one organization might reuse information developed by another.

Number of Pages in PDF File: 41

Keywords: Intellectual Property, Innovation, Information Asymmetry, 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: October 27, 2012

Suggested Citation

Clarkson, Gavin and Van Alstyne, Marshall W., The Social Efficiency of Fairness (November 26, 2009). 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
NMSU - Finance Department / Indian Resource Development Program ( email )
Las Cruces, NM 88003
United States
575-646-3636 (Phone)
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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