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Patent law? It's all about Apples, Newton and iPads

Why even free marketeers love need IP

Kids, jabs, school

Both are obviously rivalrous and excludable. You can deprive a kid of schooling and one place taken means that another cannot take that same place. Yet there's still a positive externality, or public good, in there. As even Adam Smith noted, being part of a generally literate society probably has good effects on that society in general: you can deprive an individual of their own education but not of that general good of the society having been educated.

So with vaccination: you can cackle with glee as you deny a baby the jabs while shouting “Yer Gonna Die Little'un!” but it's impossible to prevent anyone taking advantage of the herd immunity we get when 95 per cent of the population is so vaccinated. (The effect is that there's then no reservoir of the disease in the population so even the unvaccinated don't catch it.)

The general solution at this point is that we therefore have to intervene into these markets for public goods (or the public bads like pollution) on the grounds that we're not going to get enough of one – or too much of the other – unless we do something. To return to my being a free marketeer: there's pretty much no economist who would would disagree with the above. (OK, with some of the imagery, perhaps) The disagreements come with what we should do about it.

Your university education probably isn't a public good in this jargony sense, while your primary school one probably was. We thus think it appropriate to subsidise from general tax funds your whippings when ee' were a lad and not the pussywhipping you got at uni. Fixing granny's hip is undoubtedly something desired by the public, even good for the public, but it's not a public good in the same sense that the herd immunity from vaccination is.

So, we argue for out-and-out subsidy of the vaccination, not so much of granny's hip. Note that it's still entirely possible to argue for the NHS or any other societal health care system, if you wish. Only that it's mostly not a public good, so this particular argument shouldn't be used.

We use different things in different circumstances, though: in the education and healthcare fields we subsidise from tax revenues. With the negative externalities like pollution sometimes we use regulation and sometimes taxation to reduce them. In the field of intellectual property, something which is as with those equations definitely a public good, we change the property rights in order to provide the incentive to produce. Sometimes we use copyright, sometimes patents, but what we're always trying to solve is this problem of excludability and being rivalrous or not.

Having laid out the basic economics of it all, next time I'll be back with a closer look at what we're doing in IP and where we might well be getting it wrong and or right. The basic takeaway here, though, is that that IP is a specific case of a more general problem: public goods, one well recognised in economics and one that even the free marketeers like me insist requires a government intervention to solve. ®

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