Tag Archives: Economics

The value of a Copyright

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Just to make it clear, I’m going to say that there is some merit behind some copyright. A way to ensure a return on effort spent to produce the piece of work. That being said, it should not be the same right for every piece produced.

I don’t really need any sort of scientific survey to look into part of this. Most copyrighted material is absolutely worthless. However, is it afforded the same protection as a major blockbuster movie, for free. Depending on how I structure the copyright of this blog, it has the same protection as Transformers 3. Why? To me this doesn’t make any sense. Which is why I’ve decided to license my blog with a creative commons license. You can see it down at the bottom. However, I still got that copyright with no effort for myself. I have to do nothing to keep that copyright. 
The arts, sciences and technologies have had a strong interaction on each other throughout human history. We can see this with how our arts are pushing our technological limits. Video games push the limits of personal computers, recording studios push the limits of audio equipment and flawless video push the limits of TV and cameras. However, for any piece of art that was created on any of these technologies, they are afforded much more protection than the technology. The art also gains this protection for free, without any effort, whereas the technology has to go through a great deal of work to prove its worthy of the protection. 
As much as I would like to remove the auto guarantee of state protection on a work, I don’t think that’s feasible. However, I do think what is feasible and realistic is implementing a registration requirement for works older than a year old. This minimum level of effort demonstrates, at least to the owner, there is value in the copyright. If the content creator fails in this, the work should fall into the public domain. Thus freeing the vast majority of our culture from copyright. 
In the patent system there is a minimum cost for renewing the protection each year, which is considered the minimum value of a patent. This scale is graduated so that the the longer you want the protection the more expensive it is. For most firms this isn’t really that much money. I think we need to add something like this for copyright. However, our current copyright length is extremely long. Which brings us to another point, after 20 years, which is the maximum allowable protection length for a technical discovery, the yearly rates should be exorbitant. In the last 10 years the copyright should cost more than $1,000,000 per year to manage. There will be firms that are willing to pay it, but it will be a difficult choice. Because it would be for every single copyright. This would quickly reduce the numbers of items within copyright protection.
I also think that there should be a payment difference for levels of protection. So this goes a bit to the different types of creative commons licenses out there. However, I think the most basic cheapest level of protection is required source acknowledgement if remixed, and the right to license out the work. Anything more than that would be extra money. So, if you didn’t want it remixed for profit you would have to pay a significant amount of money more. Again, this is per copyright. There wouldn’t be any blocks for works on a CD as each song can be sold separately, which would require a separate registration. 
I think with a system such as this we would quickly understand what the true value of a copyright actually is. At this point we have an artificially high valuation of copyrighted material based upon an extremely small subset of copyrighted material. From my previous post on the value of patents, we saw that most patents were barely able to cover the value of owning the patent. Additionally, most wouldn’t cover the cost of litigation. 
We need to come to accept that most of our art at some point becomes economically worthless, if it ever was. That’s not to say it’s not emotionally full of worth, however, we can only truly understand that value when we have easy open access to it.
Further Reading:
Free Culture Lawrence Lessig: http://www.manybooks.net/titles/lessiglother04free_culture.html (Free ebook)

What is the value of a patent?

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The truth of the matter is that most patents are worthless. What? How can that be with so many people suing over these patents? Why has there been a HUGE increase in patent activity in the past few years? Just because something is worthless doesn’t mean it can’t be useful. However, that being said, most patents are still useless. A patent on how to swing some one in a swing, is in fact, worthless and useless (real patent) (Jaffe and Lerner, 2006). In fact, I would argue it has negative value as it cost substantial money to have it patented. Granted the father was the patent attorney, however, there are still expenses that has to do with the procedures to get it patented.

In 2008 a study was published on the values of patents based on a survey asking both inventors and managers what they felt the value of a patent would be. As can be see in the figure below it’s a greatly skewed graph with the vast majority of the patents being worth less than €1 Million ($1.5 Million). This value is related to how much an inventor or manager would have sold the patent for as soon as it was issued.

Gambardella et al, 2008

But wait! That’s not worthless. In fact that’s worth a lot of money! Is it? For a person yes. For a company maybe not. R&D is not cheap. Let’s say it took three years to develop the technology and a staff of 5 people making €50,000, that alone is a cost of €750,000. You’d barely recoup the expenses of that let alone the materials. However, most economists would argue that those costs are sunk and shouldn’t be factored into the cost of the patent. I do agree with this assessment, however there are other costs to consider as well. One of the biggest costs is risk of lawsuits. Which as you can see below are growing at an alarming rate.

In a lot of ways, patents are worthless until you sue someone. There are arguments that a patent has no value until you try to actually use it, or prevent some one from using it. Thus, the fact you’re suing means it has inherent worth. Additionally, as there are requirements to pay for patents, a certain fee each year, there is a certain bottom level threshold to indicate the value of a patent. Shifts in this value will impact different patent holders differently. Increasing it towards the end could drive up litigation, while decreasing it, means that no patents will lapse.

So what can we take from this? With the rising numbers of patents, and the rising numbers of law suits, it could be argued that there is a sense of an increased value of patents. However, I think we need to be very careful with this sort of argument. As, we could just be letting bad patents get approved because of changes in the USPTO (there has been more of an increase in the USPTO than at the European Patent Office). In the end, the value of a patent is truly decided in the market when people purchase a product. Unfortunately, the person that gains value out of the patent may not be a true innovator. They could be a troll like Intellectual Ventures http://www.thisamericanlife.org/radio-archives/episode/441/when-patents-attack

References/Further Reading:

A.B. Jaffe & J. Lerner (2006). Innovation and Its Discontent.  NJ: Princeton
University Press.

Alfonso Gambardella, Dietmar Harhoff, Bart Verspagen (2008). The value of
European patents. European Management Review (2008) 5, 69–84.

Economics III

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I’m sorry it’s been so long between my last couple posts. I’ve been pretty busy. Brian just moved to Eindhoven from Austin, so I’ve been hanging out with him, moving to our new place, and then I just read a dance with dragons. In addition to that, I’ve also started working on my research project for the summer. Hopefully things will settle down now and I’ll be able to post blogs more frequently.

So, last week, I was beating up on the neoclassical growth model and my friend came running to it’s defense. He had a good point. The best way to predict the weather is based on what today’s weather is. This might work passably well, but will fail pretty quickly here in the Netherlands and in Pittsburgh. It works really well in Austin. Hot today, going to be hot tomorrow. A better way to predict is to create a range of likely outcomes through simulation. This is what the weather man does on the news. They run simulations based upon the current conditions as well as conditions in the surrounding areas to make a better prediction than just walking outside.

Evolutionary economics is based upon these same ideas. Many of the models are more like climate models rather than mathematical equations. These models have predicted crashes similarly to what happened in 2007, based upon the rules of our economy and behaviors of people within the system. There have been some models that have attempted to create models very similarly to the neoclassical models, which are able to account for more of the differences between growth rates within countries.

I prefer the simulation approach over the mathematical models, because you are able to easily change things. As we have more control over our economy than the weather, these changes can reflect policy choices, changes in regulation as well as increases or decreases in government spending. As these changes build on each other the system can simulate how a series of changes within a short time period may impact the system.

The other benefit of evolutionary economics over neoclassical is the clear tie to how science, technology and education impact the economy. These factors are typically left in the residual or the measure of our ignorance in neoclassical economics. Changes in the rate of adoption or creation of new technologies and scientific breakthroughs can impact the long term health of an economy which everyone knows, but the economists haven’t done the best job showing it under neoclassicalism. If they had, then we would never be cutting education and science funding first. We would be pouring money into these systems to try to spur more discoveries!

Neoclassical economics was useful, however, I think the time for it has passed as it is unable to deal with the complexity of the world. Evolutionary economics looks at the economy as a complex system and is designed to handle it.

Further reading:
Origin of Wealth: http://www.amazon.com/Origin-Wealth-Evolution-Complexity-Economics/dp/157851777X
Video:
https://www.youtube.com/watch?v=RQhNZENMG1o&feature=related

Economic Growth II

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So, two days ago I started discussing two different paradigms for economic growth. The first is neo-classical growth, the second is evolutionary economics. I basically asserted that neoclassical growth methods are crap. Well, I should have been a bit more careful. There are situations where they do work and can work well. However, they require a great deal of work to make sure that they actually predict anything. Additionally, they also measure if the economy is going towards or going away from a steady state position.

First, it’s not entirely clear if there is anything as a steady state economy. By steady state I don’t mean no growth at all, it’s more like consistent growth at a specific level. The US supposedly was in a steady state economic condition during the late 90s and early 2000s. However, two recessions, in my opinion, have revealed how flawed this theory of steady state economy is.

So what is neoclassical economics good for? Well, it can be used to predict growth assuming that the economy is capable of absorbing new technologies and innovations. If the economy is able to absorb these and then create manufacturing centers or research centers based on these advancements then the neo-classical growth model can work fairly well. It would work well for most European countries, however, I would still be skeptical of these predictions.

Why? Well, these growth models only capture a part of the economy as I said on Sunday. It also doesn’t predict or deal with changes within the structure of economies. For example, the age of steel was an extremely long lasting period, however, based on neoclassical growth the city of Pittsburgh should not have worried about shifting to a new area.

So what is evolutionary economics then? Well, I’ll get to that tomorrow.

Technology Incubators and You

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So, I had a discussion on faccebook that went from discussing the cost of labor for a dutch bike mechanic (€40 for about 15 minutes for work to install wheel (i did it myself in 30 minutes instead of paying that)) to a discussion about technology incubators. It got me thinking about incubators and how people think of them. Technology Incubators come in a variety of forms and while many are attached to universities there have recently been a few where they are unaffiliated and some 18 year old kid makes one. But what is an incubator? Well, at the most basic level an incubator is a place that allows a firm to grow from an idea into an actual business. When it graduates it’s at the stage where it’s making enough money to support itself, or it has gotten Venture Capital (VC) backing so it has enough money to expand to a larger facility.

My first experience with an incubator was the Machine Assistance Center (MAC) at the University of Pittsburgh where I did my undergraduate. I thought it was the coolest idea. It was this old warehouse that was converted into separate mini-factories with a few different companies in it. The rent was free or dirt cheap, and there was equipment, like lathes, drill presses and a 6 axis CNC machine. The firms were able to rent time on these tools to create their product, make new prototypes and train new employees. The university also used these tools to train community members on how to use them to gain new skills for employment. Eventually these firms were making enough money that they were able to move out of the MAC get their own place and set up shop there.

I know that in Pittsburgh there are at least two other incubators. I’m sure there are more. Carnegie Mellon started the other two I’m aware of. However, these ones are software based start ups. So these firms have very different needs than physical product based firms. The Innovation Lab at Eindhoven University of Technology, in Eindhoven The Netherlands, where I’m pursuing my master’s degree, has a different model than either. It has spaces large enough for firms that need to manufacture products, but it also has a lot of offices for consultation firms as well. So, there are many different models for an incubator and non are exactly the same.

Ok, that’s great, why should I care about these things? Well, it matters because some of these are tax payer subsidized or were created through your tax dollars (Tax Euros? Just doesn’t sound right). Earlier this year Obama started the win the future campaign, which put a couple hundred million into both VC, public groups and incubators to help reduce the barriers to entry for new companies. Many policy makers believe that these incubators or hubs of heavy start up activity could spawn another Silicon Valley, or greatly boost the economy through job creating companies. Sadly, most of these companies actually only employ a few people and don’t become huge firms like we’d like them to be (Clarysse et al, 2005). However, this activity still can help the economy of the region to some extent.

So what do we do about it? Well, I plan on studying these and their impact for my master’s thesis, so we’ll see what I find. I probably won’t post to much about it as I might try to publish a paper about it. However, when I do that I’ll write about my findings on here. Until then, I say we should be supporting these incubators. Lowering barriers to competition will eventually lead to new products, services and lower pricing. That’s what we, as consumers, want right? Besides, I want to start a company some day and I’d like some help in getting me to the point where I can get VC funding 😉

Moar?
Here’s an article about the “Win the future” campaign from when it was first announced: http://techcrunch.com/2011/01/31/startup-america-a-campaign-to-celebrate-inspire-and-accelerate-entrepreneurship/

References:
Clarysse, B., Wright, M., Lockett, A., Veld, E. Van de, Vohora, A. (2005) “Spinning out new ventures: A typology of incubation strategies from European research Institutions”, Journal of Business Venturing. Vol. 20 pp 183-216 http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_04_228.pdf