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Notice Failure and Notice Externalities


Peter S. Menell


University of California, Berkeley - School of Law

Michael J. Meurer


Boston University - School of Law

February 16, 2012

Boston Univ. School of Law, Law and Economics Research Paper No. 11-58
Boston Univ. School of Law, Public Law Research Paper No. 11-58
Stanford Law and Economics Olin Working Paper No. 418
UC Berkeley Public Law Research Paper No. 1973171
The Journal of Legal Analysis, 2013

Abstract:     
Economic theory suggests that notice plays a critical role in resource development. Resource developers will be disinclined to make significant investments without reasonable confidence that their projects will not violate the rights of others. Land rights systems and institutions generally provide reliable notice at relatively modest cost, enabling exclusionary rights to encourage efficient real estate development. Property boundaries, right structures, and neighbors with whom resource developers might have to negotiate conflicts can usually be ascertained relatively easily. Furthermore, zoning institutions generally provide relatively prompt, low cost, and reliable dispute resolution before developers need to expend substantial resources. Therefore, land claims do not usually impose substantial external costs upon developers.

Effective notice is a far greater challenge when the resources in question are intangible. Such resources can be difficult to navigate because of the amorphous nature of intangible boundaries, the difficulty of determining whether an intangible resource is already “owned” (unlike tangible assets, the non-rivalrous nature of intangibles means that multiple developers can possess them simultaneously without affecting others’ use of the resource), and the complex rights associated with intangibles (e.g., patent’s doctrine of equivalents; copyright’s fair use doctrine).

The emergence of intangible resources such as intellectual property illuminates a previously unrecognized market failure: what we call a “notice externality.” The incentives of those claiming intellectual property diverge from the social interest. Notice information is a public good. Private parties tend to under-provide public goods because they do not appropriate the full value of their investments. Moreover, inventors and creators can sometimes benefit from obfuscating the scope of rights and keeping others in the dark about their intellectual property. This article explores the principal causes of notice failure in the development of intangible resources and offers a multi-faceted framework for diagnosing the causes of notice failure and preventing, internalizing, and ameliorating adverse effects.

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Date posted: December 16, 2011 ; Last revised: January 13, 2013

Suggested Citation

Menell, Peter S. and Meurer, Michael J., Notice Failure and Notice Externalities (February 16, 2012). Boston Univ. School of Law, Law and Economics Research Paper No. 11-58; Boston Univ. School of Law, Public Law Research Paper No. 11-58; Stanford Law and Economics Olin Working Paper No. 418; UC Berkeley Public Law Research Paper No. 1973171; The Journal of Legal Analysis, 2013 . Available at SSRN: http://ssrn.com/abstract=1973171 or http://dx.doi.org/10.2139/ssrn.1973171

Contact Information

Peter S. Menell (Contact Author)
University of California, Berkeley - School of Law ( email )
Boalt Hall
Berkeley, CA 94720-7200
United States
Michael J. Meurer
Boston University - School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-6292 (Phone)
617-353-3077 (Fax)
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