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authors, in the case of copyright, have a right to their creative work and have a right to be compensated for its use. Another model, the incentive model, says that society will gain by offering a reward for the creation of intellectual property. That incentive model is the way that most economists think about intellectual property rights.

I want to say something about the true believers. “True believers” is the term I am using for people who believe that property rights enhance efficiency. That is fine when you are talking about certain types of goods and services but not when you are talking about intellectual property.

A concept discussed in the NRC Bits of Power report [National Academy Press, Washington, D.C., 1997] is depletable goods and services versus nondepletable goods and services. Depletable goods and services are things like apples—when you consume them, there is nothing left. A personal computer is a depletable good; only one person uses it, at least at a time.

The value of a nondepletable good, such as intellectual property, is not diminished by use. It has essentially no opportunity cost associated with distributing the good to others. Hence property rights on a nondepletable good, such as intellectual property or databases that have a very low reproduction cost, have potential costs because they can lead to restrictions in the exploitation of the good. The efficient usage price of a good or service is its marginal cost, which is zero, or at least close to zero, for some databases and other forms of intellectual property.

There is a trade-off between setting efficient usage prices and setting prices that provide incentives to create the good or service in the first place. Protection provides an incentive for investment by reducing the risk of misappropriation, but it also creates a potential disincentive for its use. Too much protection runs the risk of creating artificial economic barriers to the use of the database.

Second, there is also a risk that database costs will discourage the use of complementary databases. This is the aggregation problem that we have heard so much about this morning. Sometimes this goes under the related topic of the “anti-commons,” which means that by trying to exert property rights, the transaction costs that are imposed by those property rights ultimately diminish the value of the product for all.

Third, even if stronger database protection is appropriate, there is a risk that funding agencies will not adjust to the change in the costs and the values of the databases. Increased protection for databases likely would require that funding be increased to the users of databases, possible offset to some extent by lower funding for the suppliers of databases.

A good example from the Bits of Power report is the National Oceanic and Atmospheric Administration (NOAA), whose total budget more than doubled from 1980 to 1994. However, funding for the National Data Centers has actually declined. I think anybody who deals with public agencies is familiar with this type of problem. You can get money for new buildings, but you can't get your windows cleaned. Maintaining a database is, to some extent, similar to cleaning the windows.

What are the problems with too little protection? Too little protection creates the risk that there is not enough incentive to create or maintain a database. If the incentive is insufficient, the databases may not be generated, even though users would be willing to pay the costs. A different type of risk involves too little protection for the underlying database information, which may distort the type of product that is created. For instance, there might be too much investment in certain types of software or certain types of copyrightable software or certain types code or



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