Monday, December 04, 2006

Limits of the Incentives/Access Trade-off

In the last post, I talked about technology's role in both converging and diverging living standards. When IP-intensive technology leads to inequality--or when inequality prevents equal access to technology--that situation is often justified by what I'll call the second dominant narrative of tech & equality: that we must restrict access to intellectual property now, to create incentives for its future creation.

(I admit that IP may be a "special case" in the science & tech studies literature, since its defining feature is zero marginal cost of reproduction. But as IP becomes increasingly economically important to an "information society," the special case promises to become the dominant one.)

This debate over the incentives/access meme is so dominant in the IP literature that I don't want to burden this blog with all its ins and outs. Suffice it to say here, Kevin Outterson's work on the diminishing returns of antibiotic drugs, and work on discounting generally, give some good reasons to question it.

Rather, I want to focus on a darker counternarrative: namely, that sometimes access restrictions appear to be less about creating incentives for future innovation than they are about preserving relative advantage. Consider this account of price discrimination in railways:

It is not because of the few thousand francs which would have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or other has open carriages with wooden benches. . . . What the company is trying to do is to prevent the passengers who can pay the second-class fare from travelling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich . . . . And it is again for the same reason that the companies, having proved almost cruel to third-class passengers and mean to the second-class ones, become lavish in dealing with first-class passengers. Having refused the poor what is necessary, they give the rich what is superfluous.
In other words, it is in the company's interests to prevent the diffusion of technologies of comfort and repose. It profits from a scramble for better accommodations.

This may seem like a rather exceptional situation, but society is full of examples of positional goods, where the problem may be even more acute. For example, consider the possible development of a height-enhancing pill. Society doesn't have much interest in a general boost in height--but many individuals do have an interest in being taller (or, at least, approaching a normal height). Their interest is only in their position relative to others, not in achieving some Platonic ideal of height. If such a pill develops, it will not change the distribution of height in society in a productive way--but it will permit the wealthy to escape the stigma of being in the lowest percentiles. That process reinforces the stigma (or at least practical difficulty) of being at the very bottom, as extraordinary shortness becomes a badge not merely of genetic misfortune, but also of financial lack. New educational technologies can lead to similar dynamics.

My contention here is not that law should cripple the development of these new technologies: most have multiple uses, and may well be deployed constructively. Rather, it is to argue that inequality-enhancement should be a quality of technology salient enough to lead to some systematic prescriptions for legal intervention. We see a generalized solicitude for the environment in statutes like America's NEPA. Agencies have to figure out how some new technologies will affect the environment. As any American admin teacher can attest, there are many "impact statements" agencies have to fill out to assess the effects of their actions on small businesses, paperwork, etc. Perhaps technology's impact on inequality should merit a similar disclosure-forcing statute.

3 Comments:

Anonymous Michael Risch said...

But where does it stop, and why should it stop at IP?

For example, DVD technology has a great equalizing effect - the poor can see the same movies as the rich for a fraction of the marginal cost. However, it takes a fixed cost investment that the poor might not be able to afford.

Should we make DVD IP free to all? Even if we do, it still takes a fixed and marginal cost to make the DVD player, so it will still cost the poor. Should we ask all manufacturers what effect their product will have on inequality, whether or not there is IP?

That seems to lead to a slippery slope into a bottomless pit. We would have to look at all gasoline prices - higher prices have an disequalizing effect. We would have to look at automobile prices - Ford Escorts driving with Cadillac Escalades only reinforce the fact that the Escort driver has less in society.

My point is that unless IP creates a true monopoly (which is true for the most part with respect to a limited number of pharma patents) limiting "access" to IP merely creates a market for the IP. We may not like how that market plays out, but once we start meddling in markets we need to a) look at all markets and not just IP and b) expect a slippery slope.

12/04/2006 10:21 PM  
Blogger Frank said...

To Michael: You raise two very interesting threshold issues:

1) When does the prospect of inequality-intensification become real enough to warrant scrutiny?

2) Why focus on IP-intensive technology?

Let me focus on 2) first, because I think it helps explain 1).

Some limits on access to IP are necessary to a market. But they should be calibrated. One can’t squeeze blood from a stone, and it makes little sense to create a “market” for people who can’t afford it. We can argue about exactly what level of income creates that sort of situation, but clearly it makes little economic sense to have a reservation price of $20 for some piece of IP with respect to customers who a) make $20 a month and b) have zero prospect of arbitraging by selling the IP to a higher bidder.

As for the car example: I have addressed some of the issues in these posts:
http://jurisdynamics.blogspot.com/2006/08/buying-power-externality.html
http://jurisdynamics.blogspot.com/2006/10/suvs-ethanol-and-distributive-justice.html

As for 1): Whenever there is a fixed amount of a resource, I worry that excess consumption at the “top” effectively amounts to diversion of consumption opportunities from those at the bottom. Of course, one can argue that, by driving up the price of oil, excess consumers just spur the development of alternative energy sources. But there can be some real problems in the interim; see, e.g.,

http://www.washingtonpost.com/wp-dyn/content/article/2006/09/08/AR2006090801596.html

There is renewed reason to doubt that a technological “deus ex machina” will rescue us from hard distributive issues:

http://www.nytimes.com/2006/11/29/opinion/29homerdixon.html

12/05/2006 8:01 AM  
Blogger Lyria Bennett Moses said...

Here is one reason why IP might be a particular problem. Protection of DVD coding (via eg DMCA) allows the production of DVDs pretty much analogously to the railway example. Americans are allowed to play "Zone 1" DVDs. These are usually cheaper than "Zone 4" DVDs that are available for Australian machines. Now Australia and America are both relatively rich countries, so there is a bit of a "so what" about my example. But here is a list of Zone 4 countries (assuming the site I am copying from is correct): 4: Australia, New Zealand, Pacific Islands, Central America, Mexico, South America, and the Caribbean. I can understand NZ and the Pacific Islands but why is Mexico and Central America together with the more expensive Australian zone and not with the relatively cheap US zone?

I am all for market economics. If a company chooses to price its products higher in one country than another, then government should not (usually) intervene. But why should it pass laws that effectively prevent trade that would reduce the impact of such price discrimination? This is not a case of "dear me, the market has worked out in a way I don't like" but government support for an unfair outcome.

12/05/2006 4:56 PM  

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