Clearings and Thickets
Abstract: Intellectual property rights create temporary monopoly power for innovators. Monopoly pricing transfers wealth to the innovator from the innovations buyers -- consumers, producers, and other innovators. For innovations mostly used in consumption and production, the transfer from consumers and producers to innovators increases the profitability of innovating and causes more of it. The welfare gains from faster growth quickly overtake the temporary losses from monopoly’s dead weight loss. Thus intellectual property rights should be strong for innovations mostly used by consumers and producers. In contrast, for innovations mostly used by other innovators, the transfer of wealth from one innovator to another creates a dead weight loss that can lower the average profitability of innovating, causing less innovation and slower growth. Thus intellectual property rights should be weak for innovations mostly used other innovators.
Robert D. Cooter and Aaron Edlin. 2011. "Clearings and Thickets" The Ratio Research Colloquium on Property Rights, the Conditions for Enterprise and Economic Growth; the Comparative Law and Economics Forum
Available at: http://works.bepress.com/robert_cooter/161