Finance, Intangibles and the privatization of knowledge

The paper examines different types of financial organization in a framework of incomplete law, under which the rights and the duties of the individuals are not completely specified. It focuses on the relationship between finance and specificity arguing that, while financial structure influences the degree of specificity of the assets, the degree of specificity of the assets influences the financial structure of firm. Because of these two-way relation, multiple possible equilibria exist and their selection is influenced by the nature the underlying assets. For this reason, the spectacular increase of intangibles is likely to have increased the role of equity finance relatively to traditional forms of banking, which are usually guaranteed by assets that, unlike most intangibles, have thick markets and fairly stable market values. The excessive financialization of the global economy mirrors the abnormal growth of intangibles and, in particular, of the assets related to the privatization of knowledge. International regulations should also tackle the negative effects of overenclosing the knowledge commons.