Social Well-Being and IP Theft: A Dynamic Economic Analysis

Abstract:     
One of the most vexing issues of late is how to develop an effective yet socially-acceptable policy response to stop the rampant and expanding theft of intellectual property (“IP”) using the Internet. While much of the debate is of a populist and unsophisticated nature, there are in fact some significant and legitimate philosophical disagreements surrounding IP protection. For example, since IP is typically non-rivalrous in consumption, the theft of IP may be (and has been) construed as merely a transfer — what the copyright owner loses the thief gains. Some argue, consequently, that IP theft is economically of little significance. In this paper, using a very conventional dynamic general equilibrium framework, we show that the theft of IP reduces social well-being, even if we count the benefits to the thief and assume theft requires no resources. In effect, theft acts as a distortionary tax on sellers, and this distortion is not remedied by merely returning the proceeds of the theft as a lump sum transfer to consumers. As such, as the debate moves forward on how to develop effective mechanisms to prevent IP theft, we may set aside the argument that on-line theft of IP causes no real economic harm and therefore no foul.

Number of Pages in PDF File: 10

Keywords: Intelectual Property, IP Theft, SOPA

JEL Classification: O34, O38

Accepted Paper Series