Digital Expression and Exclusionary Rights

-- By AlexWang - 25 Apr 2012

In thinking about digital expression as intellectual “property,” I think there are two interesting observations worth pointing out. The first is that digital media lacks the fundamental aspect of physical property that underlies the traditional view of property rights as exclusionary rights, digital expression lacks scarcity. This raises the question of why the concept of ownership should exist at all for virtually inexhaustible, non-rivalrous goods. The second is that the granting of “limited” monopolies to incentivize creation of future digital expressions assumes the production model of separate producers and consumers and high fixed costs. A collaborative production model where each producer produces for herself and shares her products to everyone else may do better.

What is property?

The Blackstonian view of property is that “the sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.” The “bundle of sticks” view sees property as a “social institution that structures people’s relations with each other and the state regarding the control and transfer of scarce resources.” What is important from the Blackstonian view is exclusion and what is important from the modern view is idea of scarce resources. They are interrelated and their relation underlies the traditional view of physical property rights as exclusionary rights. We have the idea of property rights in things as exclusionary rights because these things are scarce. I exclude you not because the thing is mine (that would be conclusory and circular) but because there would be less for me if I did not. I exclude you because the loss from not excluding you would be higher than the cost of exclusion. And it is not that things are rivalrous that is the problem but that they are scarce. Even if resources are non-rivalrous, there is still a need for exclusion insofar as they are scare. We may not be able to exclude others, but it would be better if we could. This is the tragedy of the commons – scarce, non-rivalrous goods. Insofar as property rights are exclusionary rights, the underlying property must be scarce.

No Scarcity=No Property

Ideas are obviously not scarce, but sometimes the physical expressions of ideas can be scarce. Digital expressions of ideas, however, are not scarce, or at least should not be because once they exist, there is virtually no cost to create them. The marginal cost of producing a copy is zero. Thus digital expressions, although non-rivalrous, are potentially inexhaustible because they can be costlessly made. There is no tragedy of the commons here. But if something is not scarce, why make it excludable, namely why is it property at all? The argument for enforcement of intellectual “property” rights because it is property seems to get it backwards. The argument goes: (1) intellectual property is property; (2) the creators have property rights; and (3) the right to property is a fundamental, constitutional right that the government must enforce. But the scarcity that underlies the right of exclusion in property does not naturally exist. In fact, intellectual “property” is only scare because the government legally imposes an artificial scarcity by establishing a monopoly. The government enforcement of exclusionary property rights is really its creation.

Incentives

But even rejecting that intellectual property is “property,” there is an independent argument for government imposed monopolies – the incentive argument. The argument goes: if we do not limit the naturally unlimited things that exist today, no one will create them for tomorrow (which we will also have to limit so that there is something for the day after tomorrow). This seems like a facially valid assumption – future earnings from exclusion will fund present investment. Every firm operates under this model and the higher the fixed costs, the more important reliable future earnings.

There are two problematic assumptions in this model. One is that the producer produces only to sell to others and two, producers create from scratch. Sometimes people make things for their own personal use. They are the producer and the consumer and the cost of production is outweighed by the utility of personal consumption. Here, there is no incentive problem. Additionally, a lot of times what is useful to one person is useful to a lot of other people, and if the product is digital, the producer can share it costlessly with all others. More complex things that require lots of fixed input cost might be a problem. Here, personal utility might not be able to overcome the production costs. But in a collective commons system, where everyone agrees to share, namely where producers do not have to produce from scratch, the cost of production decreases significantly. For anyone to be willing to produce something, the personal utility need only be higher than the marginal cost of adding onto what already exists. This is model of open source software and it works incredibly well.

It is true that if you want to create from scratch to sell to others, you need a monopoly on your product to recoup the costs, but there is no need to produce from scratch. Some things, like software, can be transferred costlessly from one person to another. If the fixed cost is zero, the price should only be the variable cost, which may not even be passed on to other consumers if the utility of personal consumption exceeds it. Imposing property rights on digital expressions may actually disincentivize future production, because it increases the costs of production – either do it from scratch or pay for the inputs.

Conclusion

From an ex post view, digital expressions should not be excludable. Exclusionary rights should only exist for things that are scare and digital expressions are not naturally scarce – they can be copied ad infinitum at no cost.

From an ex ante view, digital expressions should not be excludable. Having a collective commons systems may actually incentivize more creation because of lowered input costs.

(995 words)