Tuesday, January 17, 2012

Ownership and Excludability

The Stop Online Piracy Act (SOPA; HR 3261) has prompted many to take up the discussion of property in general and intellectual property (IP) in particular. This sort of public debate is usually entertaining and sometimes illuminating. It is my wish that the present contribution to the discussion be both.

A mere three minutes before our own Sam Wilson posted his inaugural contribution to the Euvoluntary Exchange blog, Megan McArdle of The Atlantic discussed whether file-sharing resembles stealing. I'll venture a guess that Sam doesn't share Tyler Cowen's ability to digest and create information (McArdle's post weighed in at six printed pages), so I'll comment on how the issues McArdle raises are important to the concept of euvoluntary exchange and how you might introduce the discussion to your classroom.

McArdle's main points for our discussion are the arbitrary nature of property and the uselessness of rivalry in determining what sort of moral class to place file-sharing into.

The arbitrary nature of property recommends the legal interpretation of property embodied in the first two conditions for euvoluntary exchange: (1) conventional ownership and (2) the conventional capacity to trade. The second two conditions pertain more to the binding nature of contracts than to establishing what it means to "own" something. Here and elsewhere I might refer to the second condition as "the right to alienate" a piece of property from yourself. I think this is the most crucial element in the definition of "owning" something, since it will be hard to build a case that you have rights over a thing if you lack the ability to alienate it, or relieve it from your possession.

Using "conventional" definitions in law allows us to import all the nuance associated with a concept's case history without fencing ourselves in. Law, after all, is a process, and like the intellectual property you might be discussing in class, it can be discovered. One of my favorite anecdotes concerning property is the example of horse manure at the turn of the century. Suppose I drive my taxi around town each weekday. My horse eats quite a bit, and naturally, his waste ends up in the street. An enterprising young lad notices this, and since his uncle is a farmer in the countryside, he decides to walk along my taxi routes collecting dung into sacks, which he hauls to his uncle on the weekend. The lad gets paid by his uncle and the townsfolk are treated to noticeably crisper air.

I'm not having it. I paid for the oats that my horse ate and furthermore I paid for the horse itself. I'm entitled to the profits from my horse's byproducts, aren't I? I sue the boy, and to my consternation I find that the law views his input of labor, in the form of collecting the manure for sale, as establishing the boys' right to the profits from its sale. It turns out, the law views a bag of crap as a fundamentally different product from crap sans bag. Property rights are arbitrary.

Property rights create something economists call "excludability". A product is excludable if I can prevent you from using it. Excludability is important to our notion of responsible stewardship. The tragedy of the commons occurs when resources held in common, which aren't very excludable, are over-utilized, possibly to the detriment of future use if the resource is renewable. Open-water fishing is a leading example of a non-excludable resource, with overfishing gaining media attention from time to time as consumers become more or less enamored with seafood.

Rivalry is a related concept, but instead of being a quality derived from the property rights (or lack thereof) assigned to a resource, it is a quality derived from physical attributes of a resource and how it is used. A rivalrous good is a good where my consumption of the good reduces your ability to consume the good. Music at a party is non-rival, but a candy bar is rival. McArdle builds a strong argument for throwing rivalry out of our consideration of the morality of Internet piracy.

Excludability, on the other hand, is rather important, since it derives from the property rights inhered in the resources under consideration. Imagine Sam's world of fruitcakes, again. Before the invention of the cake cloner, bakers sell a fruitcake built from a recipe that is excludable. So long as they don't share recipes, each baker is free to pursue building a massive cake empire based on taste and branding, an empire large enough to make Coca-Cola envious.

After the invention of the cake-cloner, the recipe is largely out of the bag. Even if no one knows the recipes, the machine can figure it out to a sufficient degree to reproduce an exact replica. If we were a clever consumer of fruitcakes, we might claim that since recipes are no longer excludable, eating a bootleg cake isn't theft. To my knowledge, no one makes these sort of arguments regarding copied music, and in any case, doing so would be begging the question. The absence of excludability is a symptom of missing property rights, not evidence that something isn't property and therefore cannot be stolen.

I suggest asking a series of questions in class to pique your students' interest in these concepts. If all goes well, they'll end up learning something without intending to!

  • Ask your students to define property. Ask them to identify problems with their own and their peers' definitions.
  • Modify our fruitcake economy by adding a second good. Discuss the difference between transfers resulting from the creation of the fruitcake cloner and allocative inefficiencies resulting from its invention.
  • Rivalry, and to a lesser extent, excludability, are usually introduced in the context of public goods. In a world of cheap, perfectly copied fruitcakes, how are fruitcakes similar to and different from conventional examples of public goods?

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