Essays on the Institutional Analysis of Copyright and Its Alternatives

Ryan Safner

Advisor: Richard E Wagner, PhD, Department of Economics

Committee Members: Alexander T. Tabarrok, Donald J. Boudreaux

Enterprise Hall, #318
April 20, 2015, 01:00 PM to 10:00 AM


Intellectual property rights are rapidly becoming one of the focal points of political and legal controversy in the 21st century. Copyright laws in particular have become a particularly salient issue due to recent legal developments and the explosion of technological developments that reduce the cost of copying expressive works. The fundamental dilemma is a free rider problem in creating expressive works, as once a work is produced, it is potentially accessible to everyone at low marginal cost, which dissipates the returns from producing in the first place. Copyright laws are intended to encourage the creation of expressive works by granting exclusion rights to prevent unauthorized users from accessing produced works, but the monopoly power engendered in these laws creates considerable costs. This dissertation compiles a series of three essays which aim to explore copyright laws -- their function, evolution, and their alternatives -- by using an institutional approach to the underlying problem of free riding in the production of expressive works. 

1. Wiki-nomics: Bringing Institutions Back into the Analysis of Copyright with a Case Study of Wikipedia  

The first chapter explores and critiques the traditional argument for copyright laws as the legal optimization of a tradeoff between increasing innovation (by strengthening monopoly power of copyright-holders to increase returns) and decreasing access to existing works (lost due to increase in monopoly power and transaction costs). This framework, while logically consistent, is incomplete due to its neglect of entrepreneurship, which manifests itself in the real world through a variety of anomalous examples such as free and open source software. Instead, I offer an institutional approach, following the Bloomington School's IAD framework, to outline principles of institutions which can successfully manage a commons of expressive works. In particular, I use Wikipedia, the free online encyclopedia, as a case study of success and entrepreneurial innovation in this arena.  

2. Pirate Thy Neighbor: The Protectionist Roots of International Copyright

 The second chapter explores the history of copyright's evolution and legal internationalization in the context of the modern movement to harmonize intellectual property globally under the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Proponents of harmonization argue, in part, that stronger laws will encourage economic development in both developed and developing countries. However, history is inconsistent with this narrative, as I suggest that the strength and spread of a nation's copyright laws chiefly depends on the interests of its domestic publishers. I construct a simple game-theoretic interaction between two publishers at two tiers -- domestic and international -- to elucidate this mechanism. Publishers emerge by pirating other works (especially foreign) until they become become dominant market players and seek to protect their own works abroad via international copyright agreements. I demonstrate a stable historical pattern of three phases of development and use the United Kingdom, United States, and Germany as case studies.  

3. Crowdfunding Expressive Works, Crowding Out Copyright? 

The final chapter provides a comparison between three enduring institutions that provide expressive works. I show copyright to be but one institutional equilibrium that manages the free rider problem for expressive works (albeit at significant cost). I construct a simple game-theoretic model of repeated play between creators and consumers, demonstrating the multiple institutional equilibria that can emerge to effectively provide expressive works if they feature (1) an agent that bears fixed costs (2) in exchange for some distribution of the gains, and (3) deter external replication. I compare copyright with patronage of the arts and crowdfunding, and demonstrate that all three institutions utilize these three mechanisms and are fundamentally extensions of patronage. As crowdfunding is the most recent and understudied system, I provide simple empirical evidence to align our understanding of it with this institutional framework.