January, 2016

Intellectual Property Rights, Public Choice, Networks, and the New Age of Informal IP Regimes

  • William F. Shughart II

  • Diana Thomas

    Associate Professor of Economics, Creighton University
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Find the article at Chicago Journals.

In this Article, we review the literature on formal versus informal regimes for protecting intellectual property (IP) rights, the stated aims of which are to encourage investments in myriad creative activities that foster economic growth (through the discovery of new products and new production methods) or expand the aesthetic pleasures of human life (literary and artistic works). Public choice concerns about competition for—and capture of—the rents associated with patents and copyrights suggest that formal government enforcement of intellectual property rights is not the first-best option in some cases and is counterproductive in others. We then explore the effectiveness of alternative, informal means of protecting intellectual property rights, such as trade secrets, first-mover advantages and the “street-performer protocol,” in facilitating the appropriation of returns to the time, effort and money required to discover new knowledge and new ideas sufficient to make such investments worthwhile ex ante. Emphasizing that in practice innovators typically rely on combinations of formal and informal protections, we end by proposing some modest reforms to the current institutional framework.