|M.Sc Student||Tehawkho Marian|
|Subject||Different Protection for Different Assets: An Economic|
Analysis of Intellectual Property Rights
|Department||Department of Industrial Engineering and Management||Supervisor||Professor Dan Peled|
|Full Thesis text - in Hebrew|
Both legal and economics scholars regard patents and copyrights as different forms of intellectual property rights (IPR), each suitable for a different types of intangible goods. This work examines one possible justification for such asset-specific protections, the degree of substitutability among protected goods. The hypothesis is that different intensity of IPR protection can emanate from the extent to which different goods have easily found 'alternatives'.
A simple theoretical model is constructed to test this idea. A "consumer" combines income and a composite good produced from different intermediate goods, to derive his total utility. One of the intermediate goods is an intellectual property asset, which can be purchased or illegally copied. Illegal use can be detected, and is punished with a fine when the perpetrator is caught. Protection policy consists of a combination of detection probability of an infringement, and by the fine per pirated unit when an infringement is caught. Social welfare maximizing IPR protection is computed for different degrees of substitutability among the goods.
Given its complexity, the equilibrium of the model is solved numerically. In any given economic environment, parameters of the protection policy can be grouped into three regions, according to the nature of the equilibrium they induce: low, medium and high protection.
For all the parameters that have been examined we find that welfare is maximized at the lowest protection level in the middle range. This is the protection level that maximizes both the piracy level and consumer utility, and minimizes the profit of the protected good producer but still gives him an incentive to operate.
Three substitution measures affect consumers' incentives to pirate the protected good: the substitutability in consumers utility between the composite good and income, the number of intermediate goods, and the technological substitution among them in producing the composite good. A higher weight on 'income' compared to that of the composite good and higher number of intermediate goods - increases the socially desirable protection. On the other hand, the substitution among the intermediate goods has a non-monotone effect on the optimal protection. Up to a certain degree of substitution the optimal protection level decreases, whereas higher substitution implies higher optimal protection.