ABSTRACT
Intellectual property protection is important but, almost of necessity, imperfect. It is harder and therefore more costly to define than conventional property, and by the same token, it is costlier to enforce intellectual property rights. In some cases, the inventor gets more than his marginal contribution, in other cases, less. Intellectual property protection strengthens dynamic efficiency and competition, but often at the expense of static efficiency and competition. If overly strong, it can actually hinder both dynamic and static efficiency and competition. Public policy towards intellectual property must take into account this perspective. There is no simple prescription; as in other areas of what economists refer to ‘the economics of second best’, appropriate policy needs to take into account the facts and circumstances pertinent to different situations.
