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Efficient Contracts for Digital Content

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  • Tobias Regner

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Abstract

This paper analyses efficient contracts for digital content, focusing on the music industry. It contributes to the quest for an efficient intellectual property rights environment for information goods. Moreover, it adds an interesting application to the field of behavioural economics. The model is set in a contract theory framework with the copyright holder being the principal and a consumer the agent. We offer three contract cases for analysis: strong copy protection, a strategically low price and voluntary reciprocal contributions. Insights from the economics of information and behavioural economics - information goods have public goods properties; social preferences are significant among individuals - are applied to examine the value of a strict copyright enforcement in the digital age. We find that endogenous incomplete contracts based on fair, reciprocal behaviour may achieve a first-best allocation of information goods, while complete contracts are limited to second-best results.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp108.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 04/108.

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Length: 30 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:bri:cmpowp:04/108

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Keywords: internet; music industry; social preferences; reciprocity; moral hazard; file sharing;

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  1. Fahr, Rene & Irlenbusch, Bernd, 2000. "Fairness as a constraint on trust in reciprocity: earned property rights in a reciprocal exchange experiment," Economics Letters, Elsevier, Elsevier, vol. 66(3), pages 275-282, March.
  2. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 817-869, August.
  3. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  4. Ernst Fehr & Alexander Klein & Klaus Schmidt, 2001. "Fairness, Incentives and Contractual Incompleteness," CESifo Working Paper Series 445, CESifo Group Munich.
  5. Cadsby, Charles Bram & Maynes, Elizabeth, 1999. "Voluntary provision of threshold public goods with continuous contributions: experimental evidence," Journal of Public Economics, Elsevier, Elsevier, vol. 71(1), pages 53-73, January.
  6. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 32(2), pages 255-80, October.
  7. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1812, C.E.P.R. Discussion Papers.
  8. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  9. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper, Tilburg University, Center for Economic Research 1998-37, Tilburg University, Center for Economic Research.
  10. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(1), pages 60-79, March.
  11. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
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