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Evaluating the Demsetzian Trend in Copyright Law


  • Frischmann Brett M.

    (Loyola University Chicago)


Copyright law provides an excellent case study with which to evaluate Harold Demsetz's theory of property rights. Regardless of how one feels about the relationship between property and intellectual property, it is hard to escape the fact that intellectual property rights have expanded and grown more property-like and more privatized in recent decades. In this article, I critique the undeniable Demsetzian trend in copyright law and challenge some of the fundamental premises upon which rest the normative arguments for continued privatization and propertization of intellectual resources. First, I focus on the perceived benefits of internalizing externalities, arguing that externalities do not necessarily distort incentives or, more generally, the market allocation of resources. For many externalities, there is no efficiency benefit to internalization (whether accomplished by Pigouvian taxes/subsidies or property rights). In the end, the benefits of internalization must be carefully assessed rather than assumed. The view that increasing the degree of internalization through private property rights inevitably leads to increased incentives to invest in creation or distribution is not well-established in either theory or practice. Second, I focus on the frequently-invoked solution of efficient licensing and the logic that property rights should be extended into every corner in which people derive enjoyment and value...[so that] signals of consumer preference [may] trigger and direct [producers'] investments (Goldstein, 1994). I argue that a fundamental flaw in this logic undermines the efficient licensing hypothesis. Social demand for individuals' access to and use of copyright protected works often exceeds private demand. Purchasers'/licensees' willingness to pay reflects only their private demand and does not take into account value that others might realize as a result of their use. As I explain, many uses of copyrighted works generate value for third-parties. Finally, drawing from the first two points, I argue that, from a Coasean perspective, both externalities and property rights have symmetrical and reciprocal potentials to distort the market allocation of resources. A priori and devoid of context, one cannot say that the potential distortions caused by a property right, externality, or incremental change in a property right have a net positive or negative effect on social welfare.

Suggested Citation

  • Frischmann Brett M., 2007. "Evaluating the Demsetzian Trend in Copyright Law," Review of Law & Economics, De Gruyter, vol. 3(3), pages 649-677, December.
  • Handle: RePEc:bpj:rlecon:v:3:y:2007:i:3:n:2

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    References listed on IDEAS

    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(2), pages 315-329, October.
    3. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    4. Putterman, Louis & Skillman, Gilbert L., 1992. "The role of exit costs in the theory of cooperative teams," Journal of Comparative Economics, Elsevier, vol. 16(4), pages 596-618, December.
    5. Burch, Timothy R., 2001. "Locking out rival bidders: The use of lockup options in corporate mergers," Journal of Financial Economics, Elsevier, vol. 60(1), pages 103-141, April.
    6. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(2), pages 315-329, October.
    7. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 27-54.
    8. Schwartz, Alan & Watson, Joel, 2000. "Economic and Legal Aspects of Costly Recontracting," University of California at San Diego, Economics Working Paper Series qt4jr3g3h7, Department of Economics, UC San Diego.
    9. Sergio G. Lazzarini, 2004. "Order with Some Law: Complementarity versus Substitution of Formal and Informal Arrangements," Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(2), pages 261-298, October.
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    Cited by:

    1. Salzberger, Eli, 2011. "The dominant Law and Economics paradigm regarding “Intellectual Property" – a vehicle or an obstacle for innovation, growth and progress?," Ratio Working Papers 177, The Ratio Institute.

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