Copyright and Public Good Economics: A Misunderstood Relation

Abstract:     
The conventional approach to analyzing the economics of copyright is based on the premise that copyrightable works constitute pure public goods, which is generally modeled by assuming that such works are non-excludable and that the marginal cost of making additional copies of them is essentially zero. These assumptions in turn imply that markets systematically produce too few copyrightable works and underutilize those that are produced. Moreover, any attempt to alleviate the problems of underproduction necessarily exacerbates the problems of underutilization and vice versa. In this Article, Professor Christopher Yoo argues that the conventional approach is based on a fundamental misunderstanding. A close examination of the foundations of public good economics reveals that the defining characteristic of public goods is the need to satisfy an optimality criterion known as the "Samuelson condition," which gives rise to a source of market failure that is distinct from the problems posed by non-excludability and zero marginal costs. Reframing the analysis in terms of the Samuelson condition also expands the number of ways in which the assumptions underlying pure public goods can be relaxed. In so doing, it suggests that markets for copyrighted works are more properly analyzed as impure public goods. Unlike markets for pure public goods, markets for impure public goods exhibit no systematic bias toward underproduction and are not bounded away from providing efficient levels of utilization. The insights of impure public goods theory thus have broad implications for a wide range of copyright-related issues, including fair use, duration, compulsory licenses, database protection, digital rights management, and derivative works.

Number of Pages in PDF File: 82

Accepted Paper Series