DP3317 Matching Demand and Supply in a Weightless Economy: Market-Driven Creativity With and Without IPRs

Author(s): Danny Quah

Publication Date: April 2002

Keyword(s): cultural good , finitely expansible , innovation , intellectual asset , intellectual property , internet , IP valuation , IPR , knowledge product , MP3 , non-rival , software

JEL(s): D90 , O14 , O30

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP3317.asp

Many cultural products have the same non-rival nature as scientific knowledge. They therefore face identical difficulties in creation and dissemination. One traditional view says market failure is endemic – societies tolerate monopolistic inefficiency in intellectual property (IP) protection to incentivize the creation and distribution of intellectual assets. This Paper examines that trade-off in dynamic, representative agent general equilibrium, and characterizes socially efficient creativity. Markets for intellectual assets protected by IP rights can produce too much or too little innovation.