Assumptions Separate Theory from Ideology

Assumptions Separate Theory from Ideology

For those who have not read Isaac Chotiner’s interview of Richard Epstein on the latter’s “Coronavirus Perspective” (originally titled “Coronavirus isn’t a Pandemic”), please do. Epstein’s article (after correcting an embarrassing error in his math) claims there will be only 2,500 deaths from COVID-19. As of this writing, there have been 5,443.

In it, Epstein is thoroughly beclowned by Chotiner, doctors interviewed to respond to some of the laughably false assumptions made by Epstein, and his own behavior. Scattered throughout the interview are quotations from actual medical professionals, who thoroughly discredit each and every assumption on which Epstein’s model rests.

I have noticed a similar trend in justifications for intellectual property on consequentialist grounds. The theoretical underpinnings of arguments for the creation of exclusive rights to ideal objects on the grounds that free-riding will disincentivize future innovation are valid, and the theory certainly applies in some cases. But the assumption that this applies to everything currently protectable under copyright and patent law today must be proven for the logic to follow.

Richard Epstein, when he’s staying in his lane, is one of the most prominent supporters of intellectual property on consequentialist, law and economics grounds. (And, agree or disagree with him, he is a formidable legal scholar). Following in the Demsetzian tradition which holds that grants of exclusivity are needed to internalize externalities, he argues:

It does not take any cynical belief in the corrosive effect of self-interest to think that few people will take steps to make their neighbors and competitors better off than themselves. Unless there are strong intellectual property rights, free-riding will destroy innovation. But since it is quite impossible to protect these rights by keeping them locked in a vault, self-help does not work unless we want to invite individuals to privately raze the plants and seize the stock of those who violate their property rights. The use of explicit legislation and public institutions is an added cost for intellectual property. But it seems well justified in light of the enormous technical and literary advances that would not occur in its absence.

Brink Lindsey and I come out against the treatment of ideas as property on these grounds in our paper, “Why Intellectual Property is a Misnomer.” Harold Demsetz and Richard Epstein are right to claim that in some cases “[i]f a new idea is freely appropriable by all, if there exist communal rights to new ideas, incentives for developing such ideas will be lacking.” But, as Lindsey and I argue in our paper:

When it comes to incentivizing innovation or artistic expression, what matters is that innovators receive sufficient returns to enable their innovative or expressive activity. It is emphatically not the case that innovators and artists need to capture all or even most of the returns that accrue from their activities…

[Free-riding] to the point of constituting a market failure in the absence of intellectual property rights [occur] only under very specific conditions: namely, when high fixed costs of creation or innovation are combined with low costs of imitation by competitors. In those particular situations, artists and inventors may be deterred from investing in creation or innovation because they fear the inrush of imitators will prevent them from recouping their costs. When upfront costs aren’t that high and successful imitation isn’t easy, creators and innovators still have adequate incentives to do their thing even without the benefit of temporary monopolies.

“Intellectual property is good because it prevents the free-riding that makes it impossible for inventors to recoup the upfront costs of innovation, making us better off in the long run” and “intellectual property is bad because it restricts the free use of ideal objects, either for consumption or further innovation, that would have been created without it” are two internally consistent claims. Neither is universally true, and determining which better describes the nature of ideal objects in an industry depends on the industry. And in general, the more incremental innovation is, the weaker the justification for patenting as a means to promote innovation becomes.

Software is the industry in which the case for intellectual property is the weakest; necessity, not the promise of monopoly, is the mother of invention, and there are benefits to both the users and developers of software under an open-source regime.

Pharmaceuticals are on the opposite end of the spectrum. Compared to the costs of research and development, it is relatively easy to reverse-engineer and cheaply produce a drug. But even here where the case for patent protection is at its strongest, the patent system is regularly abused in ways that complicate the basic Demsetzian logic. The Institute for Medicines, Access, and Knowledge (I-MAK) found in 2018 that the top 12 grossing drugs in the U.S. had an average of 75 patents associated with them, granting an effective patent term of 38 years.

Epstein, to be sure, qualifies his arguments in this essay (and in others), and has no principled objections to tweaks in the patent or copyright system when the assumptions he uses don’t hold. But the same could be said about his willingness to change his conclusions if he updated the assumptions used in his epidemiological model. 

The statistician George Box quipped that “all models are wrong, but some are useful.” The same is true of the general model justifying intellectual property, but one cannot assume it is useful all the time — in other words, that any unauthorized copying will necessarily lead to a collapse in innovation, as many (especially those on the political right) have done. 

While Epstein’s influence on the COVID-19 debate will (hopefully) be far less consequential than his influence on the field of intellectual property, his errors in the former shed light on the errors made by his intellectual compatriots in the latter. Ideologies offer one-size-fits-all solutions to complicated problems, while theoretical models can be applied to certain situations but must be abandoned when those assumptions aren’t met or when evidence contradicting the theory emerges. Those on Epstein’s side of the intellectual property issue must be careful to not let their theory, however useful it may be in particular circumstances, turn to ideology.

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By |2020-04-03T09:53:05-07:00April 2nd, 2020|Blog, Intellectual Property|