How Powerful are Intellectual Property Rights?

In an inspiring article, Claude Henry and Joseph Stiglitz address a core economic issue that has forcefully re-emerged on the global policy agenda: what is the suitable level of intellectual property rights (IPRs) that should be granted to inventors and innovators? Investment in knowledge and innovation produces widespread advantages in terms of economic development, productivity and welfare. It is therefore understandable that public policies would attempt to induce the business sector to innovate more. But the business sector is far from being altruistic and the realm of knowledge isdominated by high uncertainty: you never know if, what, how and when you will find something. Profit-seeking firms do invest in such an uncertain activity if they can appropriate the returns from their investment. Without IPRs, firms have fewer incentives to invest in generating knowledge since they do not have the guarantee that they will be able to exploit the results. But when IPRs become too strong, the diffusion of knowledge is hampered and innovation discouraged (Heller, 2008; Nelson, 1989). An ideal system of intellectual property should therefore balance the need to provide sufficient incentives to investors in innovation with the need to make knowledge available to the society as a whole.

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