Wednesday, January 11, 2012

Conventional Ownership and File Sharing

House Resolution 3261, aka SOPA, the Stop Online Piracy Act presents us with a fine opportunity to don our Smithian spectacles. Consider what Smith had to say in The Theory of Moral Sentiments about the exercise of sympathy:
As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is upon the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them. His agonies, when they are thus brought home to ourselves, when we have thus adopted and made them our own, begin at last to affect us, and we then tremble and shudder at the thought of what he feels. For as to be in pain or distress of any kind excites the most excessive sorrow, so to conceive or to imagine that we are in it, excites some degree of the same emotion, in proportion to the vivacity or dulness of the conception. (Context)

Disputes over what does and does not constitute the first condition of euvoluntary exchange (conventional ownership) benefit from conceiving what we ourselves should feel in the like situation. Towards this end, I offer the following as my inaugural contribution to Euvoluntary Exchange (below the fold).

Imagine a world that consists of two types of people: producers (P) and consumers (C). The only commodity being traded in this world is fruitcake, the enjoyment of which occupies the otherwise meager existence of our world's inhabitants. It is the sole purpose of the P folks to develop and sell new fruitcakes baked from new recipes (or slight variants on old yet beloved recipes). The C types have traditionally been able to share their fruitcake with their friends and neighbors, but they invariably return to the P types day after day, year after year for new, delicious fruitcake.

One day, a C-type invents a machine that allows her to copy and widely share existing fruitcakes at nearly no cost. Before you know it, everyone has this machine and fruitcakes are whizzing all over the world, allowing anyone, anywhere to enjoy a wide variety of fruitcakes very cheaply. C-types rejoice in their newfound wealth. P-types are less thrilled: much of their livelihood has been stolen. The P-types gang up on the C-types and imprison and fine the C-types who distribute fruitcake without paying the P-types royalties, threatening violence to those who don't comply (I will leave it as an exercise for the reader to imagine what the prisons of a fruitcake-only world might resemble). Note here that the EE violation centers on criterion (4): uncompensated externalities. C-types have unintentionally imposed a hardship on Type P people.

What went wrong? How did this otherwise peaceful world descend into monstrous chaos and violence? Though it may be easy enough to point to the machine and claim that it reduced the opportunity cost of sharing, that doesn't quite get at the extent of what's going on. Dropping the fruitcake analogy for a bit, consider whether it's odd that it seems to be a particular class of media that ends up being shared over the Web. Though I have little in the way of empirical investigation to back this claim up, I'd reckon that if you go the top five most popular Internet piracy sites, you'll find few academic articles or recently published books available on torrent. Additionally, fine artists don't seem to get especially bent out of shape when images of their work end up on popular websites. If the only thing that was going on was ownership rights or incentives to produce, we'd have something of a conundrum on our hands here.

I think I can resolve this with a reference to Daniel Kahneman's work. To get a quick grasp on how we use mental shortcuts to generate easy answers to complex questions, Bryan Caplan wrote an excellent summary here. When it comes to music and film, perhaps even video games, consumers are well-inured to sharing these freely with close associates. the shortcut question is something like, "is it cool for me to play this song for my bff?" You invite friends over to watch (some) movies. A party without background music is no party at all. Not so with reading books to the same degree. Since the written word is excludable, it just doesn't occur to anyone to decompile the .pdf source code and post the latest Stephanie Meyer gem to The Pirate Bay. Ditto for a Rembrandt. Go ahead and slap up digital versions of famous paintings to your heart's content... they're just copies anyway. Who cares?

Returning to Fruitcake Land, we might suppose that the machine merely enabled on a large scale what was already a well-established cultural norm: the sharing of fruitcake with friends and neighbors (much like our own world). The difference is that after the invention of the machine, the circle of relevant friends and relatives has increased rapidly. The C-types saw this new technology and said, "holy fruitcakes! Now we can do this thing we like to do so much with a whole lot more people than we were once able to. If sharing fruitcake with just a few people was good, sharing fruitcake with hundreds of millions of people must be pure heaven baked straight into this here fruitcake." They simply lifted their beliefs over the standard ownership of fruitcake in the absence of the machine (I own this fruitcake and am at liberty to share it with whom I please) and applied it to the state of the world that has the machine in it. In slightly more technical parlance, it is the cross product of technology and ownership heuristics that lead to thorny disputes that end in legislation like HR 3261.

On the reverse side, consider that the P-type people are actually bundling two products together: they sell real property (fruitcakes) and intangible products (fruitcake recipes). Before the advent of the machines, these were naturally wedded. The machine broke this relationship: the physical fruitcakes can be produced at far lower cost than is economical for the P-types. That whole (very large) chunk of their revenue has been steadily vanishing over time.

Dropping the fruitcake for good this time, we should be able to see that from the point of view of the artists and the record companies, liberal file sharing means that there are fewer retained earnings to plow back into recruiting new talent, fewer incentives for bands to record new studio releases, fewer box office receipts for Paramount to make Indiana Jones and the Kingdom of the Crystal Skull Redux: The Crystal Skullening...In Outer Space. Entertainment producers quite correctly see their traditional role as owners of intellectual property as threatened by file sharing. Note that fine artists who don't mind .jpg files of their art shared support my thesis here. Both producers and consumers of fine art have similar expectations of the consumption experience, similar to a commons problem where the problem has already been solved. Art is enjoyed in quasi-public spaces with original pieces purchased by a patron who then earns credibility by donating the piece to a museum or what-have-you. This arrangement is in no way threatened by Internet bootlegging.

So the lingering question is whether or not SOPA or SOPA-like legislation is an appropriate response to this conflict. It attempts to regulate or modify one input factor, leaving the ownership heuristic intact (on both sides!). Perhaps a more thorough approach would attempt to re-imagine the entertainment delivery vehicle entirely. Note also that it's impossible to bootleg an experience. Yes, you can record a concert on a video device, but by no means is a YouTube video of a concert equivalent to being there. At any rate, I hope that the exercise of taking the point of view of the relevant parties can help demonstrate how there can be legitimate disagreements about the scope of exchange. Remedies for this disagreement may make for interesting classroom or dinner party conversation.


  1. Creative destruction happens. So do natural disasters. No one is obliged to compensate the losers of either, though sympathy may motivate some in either case to help the losers out. This is less likely if the losers are sore losers.
    As more forms of art become cheaply reproducible chickens start flying closer to oeople's mouths. But only if there are chickens. Patronization of chicken tossers, fruitcake bakers, and music producers. Providing a portfolio of previous works motivates future consumers to sponsor production of their favorites. Consumers come closer to shaping the market than producers. This increases efficiency, and provides quicker feedback to entrepreneurs.
    But Say's law takes a slight hit in the process. Supply might never generate any demand. This is okay when production costs fall extremely low, so that suppliers can find other demands to satisfy, indeed it speeds the switch to higher demanded goods.
    Glad to see you at EE Sam! Nathan

    1. I don't doubt that any of what you say (re: patronage) is a valid mechanism for explaining some behavior. I do doubt that any of them are quite likely.

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  2. Though it is true that it is difficult to bootleg an experience, it could be useful to note that recorded performances were made popular as close substitutes to attending concerts. Youtube videos have terrible production value, but studio albums are of considerably higher quality, and are a closer substitute for live music.


Do you have suggestions on where we could find more examples of this phenomenon?