Wednesday, August 20, 2008 2 comments ++[ CLICK TO COMMENT ]++

Anticommons and the Stifling of Innovation

In the second decade of the twentieth century, it was almost impossible to build an airplane in the United States. That was the result of a chaotic legal battle among the dozens of companies—including one owned by Orville Wright—that held patents on the various components that made a plane go. No one could manufacture aircraft without fear of being hauled into court.

Are we hitting the point where excessive intellectual property legislation is starting to hamper innovation? This is something I am starting to wonder. Writing for The New Yorker James Surowiecki describes the problem of the "anticommons":

The situation that grounded the U.S. aircraft industry is an example of what the Columbia law professor Michael Heller, in his new book, “The Gridlock Economy,” calls the “anticommons.” We hear a lot about the “tragedy of the commons”: if a valuable asset (a grazing field, say) is held in common, each individual will try to exploit as much of it as possible. Villagers will send all their cows out to graze at the same time, and soon the field will be useless. When there’s no ownership, the pursuit of individual self-interest can make everyone worse off. But Heller shows that having too much ownership creates its own problems. If too many people own individual parts of a valuable asset, it’s easy to end up with gridlock, since any one person can simply veto the use of the asset.

Nothing to do with investing per se but an insightful read. Situations like these is what makes me skeptical of economic socialism (tragedy of commons) as well as extreme free-markets/libertarianism (tragedy of "anticommons").

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2 Response to Anticommons and the Stifling of Innovation

August 21, 2008 at 2:18 AM

Hmh, well, nobody has been injured if Jack doesn't get to use John's widget. You can make a case for society being the poorer for John's intransigence, but then we're not the Borg, are we?

On the other hand, I don't believe in intellectual property rights of any kind. My take is that they stifle innovation.

August 21, 2008 at 10:09 AM

Yes, nobody is hurt when individuals hoard things for themselves. However, progress for society is set back. That's really the key argument. It's like the joke against Libertarianism: everyone and every city will be independent but no one will build a road between them.

The difficulty, of course, is how to determine what is excessive, while preventing society (hence government) from trampling individual rights.

As for intellectual property, it's a tricky thing. Excessive IP hampers innovation but lack of IP doesn't produce any innovation (in certain cases.) For example, the software industry in China or India* is basically non-existent--and if things stand as they do, it's debatable whether there ever will be. Even a country like Russia, which has top-notch computer scientists and engineers, doesn't have much of an industry.

Other industries like pharmaceuticals also argue that there would be little innovation without strong IP rights.

(* countries like India do have a sizeable software industry but most of it is for external sales. Internal sales is very small due to rampant piracy.)

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