Friday, April 09, 2004

Romer on tragedies of the commons

Attended a talk by Stanford's Paul Romer on the tragedies of the environmental and intellectual commons. He argues that assigning property rights to environmental commons has been proven effective in many cases. However, when it comes to "intellectual commons", property rights system has to deal with way more complex an issue. He uses downloadable music as an example. It's very hard to impose property rights or royalty system in that particular market. Napster has pirated, been sued, reborn again with supposedly legal face. iTunes is more legally careful. But still, you can't stop all the illegal downloadings. How to solve this? Romer (and I agree) points out that the big chunk of rents go to the record label companies. They are the ones who inflate the price of ideas (read: music). [I am told by a friend once that Dave Matthews has solution to this: leave record companies, do life concerts].

Another good point from Romer's talk. He said, the Who's guitarist Pete Townsend was the founder of feedback (this is a technique in twisting sound in guitaring). What if Townsend assumed a monopoly rights to it? Meaning, everybody who wanted to use feedback technique has to play royalty to Townsend? Then we would never heard of Jimi Hendrix improvisation.

But I have a small problem with Romer's matrix. He graphs a matrix of commons against property rights. In the first column are environmental commons, and second intellectual (he used "ideas"). Listed in order of strength in property rights protection imposition in the first columns are land (100% protection), fresh water (about in the middle), and common pastures and fish in the ocean (both are 0%). In the ideas column, list include recorded music (100%), pharmaceuticals and "cross-docking" [like what WalMart does] (about in the middle), and PCR (polymerized chain reaction -- I have no idea what this is) and oral rehydration therapy (both are 0%). Look closely. In fact Romer mixes up between private goods and public goods. Land is 100%. Sure, because it is (in almost all cases) very close to being a private good (of course "assigning property rights" is trivial. You don't even assign it! It is earned). And recorded music, being more complex, is a quasi-public good: it's nonrivalrous, but it's excludable (trust me). He should have been more clear on this.

Update: My friend Basanta Dhungana has additional observation from the Romer talk yesterday. Basanta summed up: "...[Romer] opined that knowledge that generates knowledge (knowledge spill over) should not be regulated with full property right. Assigning full intellectual property right precludes other to innovate further. Therefore, government should invest on such knowledge based innovation..."

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