Spillovers Theory and Its Conceptual Boundaries

Abstract

Wendy Gordon has noted that most of IP law is concerned with internalizing positive externalities. In two recent articles - Spillovers (with Mark Lemley) and Evaluating the Demsetzian Trend in Copyright Law, I challenge the conventional economic theory of intellectual property and specifically the idea that society ought to use intellectual property systems to internalize externalities when feasible. The nature of the challenge - or the spillovers theory - can be viewed in two ways. I would frame the challenge as an internal one based on and consistent with welfare economics. In his reply to the latter article, economist Harold Demsetz seems to accept this view while critiquing aspects of the analysis. Others, such as economist Anne Barron, have critiqued the articles, suggesting that the spillovers theory is not consistent with welfare economics, necessarily relies on some other non-economic social theory yet to be specified, and thus is truly an external challenge to the conventional economic theories of IP.

What is interesting about these responses is how they frame a boundary dispute between economic and other social theories of intellectual property. That such a boundary exists is well understood. What seems worth exploring, for purposes of this essay, is how we arrive at and frame the contours of the boundary through a discussion of spillovers. Claims about what is on one side or the other of the boundary may turn on assumptions and beliefs that might not hold up on close inspection.

In this short essay, I reengage this debate and the critiques I've mentioned, and explore the boundary between economic and other social theories of intellectual property. I begin with a brief discussion of the conventional economic theories of intellectual property. I then discuss the spillovers theory and various critiques.

Keywords: intellectual property, spillovers, externalities

JEL Classification: D60, D61, D62, H41