Nonlinear Income Inequality Effect on Software Piracy
23 Pages Posted: 2 Oct 2009 Last revised: 12 Nov 2009
Date Written: September 26, 2009
In this paper, we examine the relationship between income inequality and piracy rate in the presence of network effects. We build a theoretical framework which examines how income thresholds determine individual users’ positive net benefits from piracy. We claim that the proportion of the population with positive net benefits from piracy increases with income inequality at a diminishing rate, and then eventually decreases. We provide empirical evidence for this inverted U-shaped relationship between income inequality and piracy rates, controlling for income, judicial efficiency, and fixed broadband subscribers. Our theoretical and empirical results imply that mild anti-piracy policies would make software producers better off in countries whose income inequality is moderate, but worse off in countries whose income inequality is severe. Therefore, policies against piracy should be strategically designed considering the non-linear effects of income inequality.
Keywords: software piracy, income inequality, network effects
JEL Classification: L1, O34, L86
Suggested Citation: Suggested Citation