The Endowment Effect in IP Transactions: The Case Against Debiasing

Abstract

This Article contains a critical discussion of Christopher Buccafusco & Christopher Sprigman’s recent studies concerning the role of the endowment effect in IP transactions. According to the thesis presented in such studies, the existence of an endowment effect in the markets for IP goods subjects them to great inefficiencies. Their thesis goes on to argue that in order to counteract such inefficiencies, IP rights must be weakened in various ways, including by making a shift toward liability rules, instating formalities in copyright law and expanding the fair use doctrine.

The thesis as presented is groundbreaking and would have broad implications. This Article, however, points out several shortcomings of this thesis and its ensuing conclusions. To begin with, the experiments upon which this thesis is based are not indicative of real IP markets. Yet, even to the extent that the endowment effect as illustrated characterizes actual IP transactions, it is argued herein that there is no case for debiasing through law. Among other reasons, I demonstrate in this Article that heightened valuations of IP goods are often driven by emotional attachment, making such valuations fully consistent with the rational choice model. Furthermore, I argue that over-optimism, another factor that drives up the valuations of IP goods, is a phenomenon that society should commend in the context of creative activity rather than condemn. Ultimately, then, the thesis made in this Article posits that the proposed changes to the current structure of IP law are not only unnecessary in order to ensure efficiency in the markets for IP works, but might, in fact, circumvent the ability of our IP system to achieve its prescribed goals.

Keywords: ip, intellectual property, patents, copyright, endowment effect, behavioral economics