Ch 2 - Investing in Knowledge

Ch 2 - Investing in Knowledge - Ch 2 - Investing in...

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Knowledge Information goods Use by one person does not preclude use by any other person Does not cost additional resources Nonrival Protects the "template" (i.e. template of how to produce a clock) Patents (if at all) Protected by intellectual property rights Useful information that exists in nature Emphasis Knowledge of how to make a clock (Harrison) DNA is double helix Example: Use by one person does not preclude use by any other person Does not cost additional resources Nonrival 1. Difficult to exclude 2. Public good Protects the "template" (i.e. information itself - musical score) Copyrights Protected by intellectual property rights Creativity Emphasis Computer software Music Example: 1714 - English Parliament/King George III & prize of determining longitude ( targeted, ex ante ) Board wanted a pure public good (i.e. lunar method) Withstand difficult conditions Clock that could keep faithful with London time; discern "time zone" Costly to produce, not efficient to make clocks freely available Later disclosed knowledge of how to make the clock John Harrison Private Goods vs. Knowledge Applicant must disclose template No prize - payment is made by sheltering inventor from competition Exclusive right to use template for limited time (20 yrs in US) Once template is made public, no natural barrier that excludes users from using it Patent law Problem -- DWL The following are ex post arguments of intellectual property protection -- pertain to efficient distribution of good once it has been invented Goods go to consumers who value them the most 1) i.e. A clock will only be produced if its value to the consumer is greater than the opportunity cost of the maker P = MC 2) Efficient Market for clocks (2.1) Competitive market Efficient competitive price (0) will not cover costs of developing software No efficiency reason to deprive anyone of use Create monopoly pricing Intellectual property protection as solution to cover costs Market for software (2.2) - Monopolist pricing Information goods (i.e. software) 2.1 Intellectual Property: Tolls on the Information Highway Depriving saves resources Exclusion is efficient -- does not apply to information goods Defect of intellectual property as an incentive mechanism People excluded even though their willingness to pay > MC Loss in CS due to users excluded through proprietary pricing during
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This note was uploaded on 11/13/2009 for the course ECON 143 taught by Professor Wright during the Fall '07 term at University of California, Berkeley.

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Ch 2 - Investing in Knowledge - Ch 2 - Investing in...

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