15 ms·

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, afte

by baddox 12y ago

> Rents are not always bad. Protections for intellectual property make sense not in spite of the rents they generate, but rather because of them. A patent, after all, is a temporary monopoly. These monopoly rents give incentives for innovation and allow innovators to cover the costs of research and development. This is a weird way to talk about IP and rent. Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights). Markets are just systems of trade, and "trade" is the exchange of ownership. Thus, an action which most of us believe constitutes a violation of property rights (e.g. I buy a laptop and someone takes it from a cafe without my permission and then sells it to a third party) is not "trade in a competitive market." So is an IP right a legitimate instance of ownership? Many people (and most Western legal systems) consider it to be so. There are also people who don't consider it to be so, pointing out differences between physical property and intellectual property. And, to be clear, there are people who don't even accept certain aspects of well-accepted physical property rights.

skilesare 12y ago
Economic rent is the amount above the COSTs, not the just above a competitive market, unless you're considering that all competitive markets drive profits to zero. (Which a lot of people argue is one issue with perfect markets) It turns out, that they're both immoral and awesome. we have to find a way to have our cake and eat it too. -@hypercapital
- jjoonathan 12y ago
  Competitive markets drive profits to 0, and then the only people who are making profits are behemoth rent-seekers in the exceptional markets. Yaay.
kd0amg 12y ago
I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been developed, the marginal cost (to the inventor) of someone else's use of that invention is zero. Any license fee at all that the inventor collects is in excess of what it costs the inventor for the licensee to use the invention, so the license fee is rent.
- joe_the_user 12y ago
  The problem is such definition would result in a situation where the seller had no incentive at all to engage in the process of making and sell the product. Most theories of profit assume that an investor gets money approximately proportionate to the risk they take in investing as a well as to the opportunity cost of just sitting on their money.
- sliverstorm 12y ago
  It sounds like you've defined rent == profit, which suggests you need to adjust your definition of rent. Economic rent is hard to wrap your head around; I defer to the Wiki: In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents) In neoclassical economics, economic rent also includes income gained by beneficiaries of other contrived exclusivity... In layman's terms I think it could be described as income for having/being rather than income for making/doing.
  - baddox 12y ago
    The wiki definition you quote is essentially what I was going off of. There are still terms that need to be defined, like "natural opportunities" and "contrived exclusivity," and that gets you right back to property rights.
- baddox 12y ago
  > I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product What you described is nearly precisely the definition of market power. Economic rent is, from what I've read (IANAE), a special case of market power that applies to factors of production (particularly land).
- esoltas 12y ago
  Yep, and I define it at the top of the most that way. Rent = profit in excess of opportunity cost of the production factor.
deleted 12y ago
[deleted]
joe_the_user 12y ago
You're making an interesting argument: Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights). First comes the existence of "intellectual property" in property rights. To avoid the dependence of the right to property on the state or the monarch, John Locke and others argued for the concept of "natural rights" - the right to physical property and land property I think are included in this while intellectual property such as copy rights have not been. After all, if property is merely an administrative system established by the state for some purpose, such a system can be changed if it happens to not serve that purpose. The assumption of natural property is that (land and mobile) property rights are a prerequisite for the existence of a just state rather than the result of the state. So-called intellectual property is always the product of a state, indeed intellectual property is always a monopoly of activity granted by the state (with the "natural rights" argument being aimed to claim natural property rights are more than that). Now, a purely formal, economic definition only judges the structure of a market in question. So it simply gives what difference between what a competitive market would charge for a good and what a non-competitive market actually charges. Since "intellectual property" is a monopoly granted by the state, the degree of rent they allow is most easily calculated. If anything, the trickier thing is calculating how much rent simpler property rights involve.
spinlock 12y ago
The philosophy behind patents is that they encourage the sharing of research so that the total cost of rnd to society is minimized. Whithout ip protection, firms would rely on trade secrets. They would still charge more for their products but a competitor would have to spend the money on research to compete. I don't know if you would still call the premium they could charge rent or if you would amortize rnd over the product lifetime.
- collyw 12y ago
  Linux and the open source movement pretty much disproves that theory. Better (or "at least as good") quality kernels than the two biggest software companies and biggest defenders of intellectual property rights on the planet could manage. We should really look at the evidence rather than repeating the mantra.
  - Yen 12y ago
    I don't know if Linux/Open Source/Free Software disproves the theory, or actually proves it. The argument would be: Microsoft and Apple feel that existing IP protections on software would not sufficiently prevent competitors or consumers from 'stealing' the results of their work. So, they don't release the source code. Because they don't release the source code, there's a duplication of effort between Microsoft, Apple, and any other kernel-writers. If there existed extremely strong IP protection laws for software, that required release of source (like a patent, basically), then Apple and Microsoft might release source, duplicate less effort, and their disadvantage to Linux would be reduced. Open Source is what happens when you have a system that encourages these secrets to be shared. The only difference is, Linux manages to get R&D effort without the benefit of a monopoly-grant, or indeed, without any direct profit motivation.
    - collyw 12y ago
      Apple didn't manage to build a decent kernel themselves so took a "free" one. Nothing to do with stealing their work. You are aware that Apple uses an open source kernel?
  - 12y ago
SilasX 12y ago
The way I reconcile it is usually, "Monopolies are okay when the the good in question only exists because of the monopolist." My monopoly on SilasX's labor? No problem. Creator's monopoly on patterns that only exist because that creator found them? Reasonable. Monopoly on all trade in salt? No, just no. (It gets trickier for physical property because of what counts as creating, but you get the point.)
- tolmasky 12y ago
  Monopoly on life-saving medicine created by a scientist? Sold at prices out of reach for most people?
  - deleted 12y ago
    [deleted]
  - SilasX 12y ago
    Still better than their non-existence.
    - crdoconnor 12y ago
      The scientist (or team) in question who creates the drug is almost never the one collecting the rents. A researcher working for Pfizer is essentially getting the same deal as a researcher working for the government or a publicly funded university. The main difference is that the government and publicly funded universities do not have a marketing line item on their budget that is ~120% of their R&D budget.
      - Pyxl101 12y ago
        > A researcher working for Pfizer is essentially getting the same deal as a researcher working for the government or a publicly funded university. A voluntary agreement that the scientist and Pfizer both believe is in their own interest. The scientist presumably believes that Pfizer's funding and research equipment etc. is worth the shared ownership or whatever arrangement results. > The scientist (or team) in question who creates the drug is almost never the one collecting the rents. Can you clarify what you mean? If Pfizer conducts the research then they collect the rent. If an independent scientist conducts the research, then they will own the IP and will collect the rent instead.
downandout 12y ago
>And, to be clear, there are people who don't even accept certain aspects of well-accepted physical property rights. Yes, but they tend to be in jail. In any event, he appears to be talking about rent and the profits from IP in the context of Western civilization, in which IP rights are indeed a legitimate instance of ownership.
- baddox 12y ago
  They don't tend to be in jail. In fact, they tend to be prominent academics.
drcube 12y ago
I don't know if I've got it wrong or the author does, but I think about it like actual rents. Landlords don't make money by providing a service or selling goods. They make money by sitting on something no one else is allowed to have. They don't have to do anything more than sit back and collect checks. Sure, they bought the land originally, but there's no more investment to be made after that. They can invest in a nicer building or grounds, or compete on services such as "free" utilities or quicker repairs, but those are above and beyond the "rent-seeking" part of his revenue. He could just rent an empty lot, like a trailer park or campground. This is analogous to, for example, telephone lines. They cost a lot to initially build out, but once they're there, the phone company only has to charge people for access. They provide a service back at the switching station, but most of what they're getting money for is owning lines that already exist. It's harder to separate rent from their other revenue, but it's there. It generalizes to all revenue that is of the "sit back and collect checks" variety. Cellular carriers sitting on a chunk of spectrum they can sell access to. They can just rent it out to MVNOs if they don't want to provide those services themselves. Film studios sitting on a catalog of work they can sell, license, etc. So yes, IP revenues are definitely rents.
- baddox 12y ago
  > Landlords don't make money by providing a service or selling goods. They make money by sitting on something no one else is allowed to have. Is that second sentence any less true of any other trade, including the traditional selling of goods? After all, the only reason you have to give a food vendor money for food is that the vendor (or someone on the vendor's behalf) will use violence if necessary to defend the vendor's exclusive claim on that food. > Sure, they bought the land originally, but there's no more investment to be made after that. That isn't true. There are maintenance costs and property tax, and less obvious things like the opportunity cost of risk of purchasing a house in order to rent it out.
  - skilesare 12y ago
    It is a little bit different. Commodities can be produced by multiple people and end up being the same thing. Now there are other factors involved I can contribute to economic rent being charged. For example, the hotdog vendor at the bottom of my building can charge 1.05 for the hotdog, whereas the guy at the other side of the park will have to charge .65 for me to walk past the guy charging 1.05. It's tough to get away from economic rent.
esoltas 12y ago
Soltas (the author) here. What I meant by "rents are not always bad" is that "rent" is a positive (i.e., value-free) concept, not a normative (moral) one. "Rent" in economics merely implies that the profits are in excess of a competitive-equilibrium outcome/allocation. In this case, the competitive outcome is perverse -- nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. (It's a prisoners' dilemma.) So profits from a patent are rent, insofar as they come from the protection per se. As I acknowledge, I think those rents are economically useful -- as an economist, I don't have anything interesting to say as to whether they are morally acceptable, as you discuss in your post. For example, it's a fair argument to say that "ideas should be free," and that the purpose of IP is not to enrich/honor/etc the innovator but merely to give him the incentive to contribute the idea to the social good. Or you might argue the opposite of that. I don't really have an opinion. Hopefully this clarifies the way economists use the word "rent."
- crdoconnor 12y ago
  >nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. This just isn't true. It's human nature to innovate, just as it is human nature to sing, play music and dance. There are many times when the IP system is not only absent, but actively working against the creator, yet it doesn't stop the process of innovation. It just slows it down. The government also innovates and foots the bill for R&D, and there is a good case to be made that the most valuable technological innovations in our society do actually come from them.
  - jlebar 12y ago
    >> nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. > > This just isn't true. It's human nature to innovate, just as it is human nature to sing, play music and dance. Straw man fallacy. The OP wasn't suggesting that literally nobody would innovate, just that innovation, particularly innovation paid for by private parties of the sort of thing which is expensive and easily copied, would significantly decline. If you have ever paid to see someone sing, play music, or dance, you have participated in an activity which likely would not have occurred without there being a monetary incentive for that person to partake of the activity you paid to enjoy.

by baddox 12y ago

skilesare 12y ago

Economic rent is the amount above the COSTs, not the just above a competitive market, unless you're considering that all competitive markets drive profits to zero. (Which a lot of people argue is one issue with perfect markets) It turns out, that they're both immoral and awesome. we have to find a way to have our cake and eat it too. -@hypercapital

jjoonathan 12y ago
Competitive markets drive profits to 0, and then the only people who are making profits are behemoth rent-seekers in the exceptional markets. Yaay.

kd0amg 12y ago

I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been developed, the marginal cost (to the inventor) of someone else's use of that invention is zero. Any license fee at all that the inventor collects is in excess of what it costs the inventor for the licensee to use the invention, so the license fee is rent.

joe_the_user 12y ago
The problem is such definition would result in a situation where the seller had no incentive at all to engage in the process of making and sell the product. Most theories of profit assume that an investor gets money approximately proportionate to the risk they take in investing as a well as to the opportunity cost of just sitting on their money.
sliverstorm 12y ago
It sounds like you've defined rent == profit, which suggests you need to adjust your definition of rent. Economic rent is hard to wrap your head around; I defer to the Wiki: In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents) In neoclassical economics, economic rent also includes income gained by beneficiaries of other contrived exclusivity... In layman's terms I think it could be described as income for having/being rather than income for making/doing.
- baddox 12y ago
  The wiki definition you quote is essentially what I was going off of. There are still terms that need to be defined, like "natural opportunities" and "contrived exclusivity," and that gets you right back to property rights.
baddox 12y ago
> I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product What you described is nearly precisely the definition of market power. Economic rent is, from what I've read (IANAE), a special case of market power that applies to factors of production (particularly land).
esoltas 12y ago
Yep, and I define it at the top of the most that way. Rent = profit in excess of opportunity cost of the production factor.

deleted 12y ago

[deleted]

joe_the_user 12y ago

You're making an interesting argument: Is profit from IP necessarily rent? The problem is that "rent" is defined as "profits earned above what would be earned in a competitive market," but "competitive market" isn't well-defined until you define a system of rights (namely property rights). First comes the existence of "intellectual property" in property rights. To avoid the dependence of the right to property on the state or the monarch, John Locke and others argued for the concept of "natural rights" - the right to physical property and land property I think are included in this while intellectual property such as copy rights have not been. After all, if property is merely an administrative system established by the state for some purpose, such a system can be changed if it happens to not serve that purpose. The assumption of natural property is that (land and mobile) property rights are a prerequisite for the existence of a just state rather than the result of the state. So-called intellectual property is always the product of a state, indeed intellectual property is always a monopoly of activity granted by the state (with the "natural rights" argument being aimed to claim natural property rights are more than that). Now, a purely formal, economic definition only judges the structure of a market in question. So it simply gives what difference between what a competitive market would charge for a good and what a non-competitive market actually charges. Since "intellectual property" is a monopoly granted by the state, the degree of rent they allow is most easily calculated. If anything, the trickier thing is calculating how much rent simpler property rights involve.

spinlock 12y ago

The philosophy behind patents is that they encourage the sharing of research so that the total cost of rnd to society is minimized. Whithout ip protection, firms would rely on trade secrets. They would still charge more for their products but a competitor would have to spend the money on research to compete. I don't know if you would still call the premium they could charge rent or if you would amortize rnd over the product lifetime.

collyw 12y ago
Linux and the open source movement pretty much disproves that theory. Better (or "at least as good") quality kernels than the two biggest software companies and biggest defenders of intellectual property rights on the planet could manage. We should really look at the evidence rather than repeating the mantra.
- Yen 12y ago
  I don't know if Linux/Open Source/Free Software disproves the theory, or actually proves it. The argument would be: Microsoft and Apple feel that existing IP protections on software would not sufficiently prevent competitors or consumers from 'stealing' the results of their work. So, they don't release the source code. Because they don't release the source code, there's a duplication of effort between Microsoft, Apple, and any other kernel-writers. If there existed extremely strong IP protection laws for software, that required release of source (like a patent, basically), then Apple and Microsoft might release source, duplicate less effort, and their disadvantage to Linux would be reduced. Open Source is what happens when you have a system that encourages these secrets to be shared. The only difference is, Linux manages to get R&D effort without the benefit of a monopoly-grant, or indeed, without any direct profit motivation.
  - collyw 12y ago
    Apple didn't manage to build a decent kernel themselves so took a "free" one. Nothing to do with stealing their work. You are aware that Apple uses an open source kernel?
- 12y ago

SilasX 12y ago

The way I reconcile it is usually, "Monopolies are okay when the the good in question only exists because of the monopolist." My monopoly on SilasX's labor? No problem. Creator's monopoly on patterns that only exist because that creator found them? Reasonable. Monopoly on all trade in salt? No, just no. (It gets trickier for physical property because of what counts as creating, but you get the point.)

tolmasky 12y ago
Monopoly on life-saving medicine created by a scientist? Sold at prices out of reach for most people?
- deleted 12y ago
  [deleted]
- SilasX 12y ago
  Still better than their non-existence.
  - crdoconnor 12y ago
    The scientist (or team) in question who creates the drug is almost never the one collecting the rents. A researcher working for Pfizer is essentially getting the same deal as a researcher working for the government or a publicly funded university. The main difference is that the government and publicly funded universities do not have a marketing line item on their budget that is ~120% of their R&D budget.
    - Pyxl101 12y ago
      > A researcher working for Pfizer is essentially getting the same deal as a researcher working for the government or a publicly funded university. A voluntary agreement that the scientist and Pfizer both believe is in their own interest. The scientist presumably believes that Pfizer's funding and research equipment etc. is worth the shared ownership or whatever arrangement results. > The scientist (or team) in question who creates the drug is almost never the one collecting the rents. Can you clarify what you mean? If Pfizer conducts the research then they collect the rent. If an independent scientist conducts the research, then they will own the IP and will collect the rent instead.

downandout 12y ago

>And, to be clear, there are people who don't even accept certain aspects of well-accepted physical property rights. Yes, but they tend to be in jail. In any event, he appears to be talking about rent and the profits from IP in the context of Western civilization, in which IP rights are indeed a legitimate instance of ownership.

baddox 12y ago
They don't tend to be in jail. In fact, they tend to be prominent academics.

drcube 12y ago

I don't know if I've got it wrong or the author does, but I think about it like actual rents. Landlords don't make money by providing a service or selling goods. They make money by sitting on something no one else is allowed to have. They don't have to do anything more than sit back and collect checks. Sure, they bought the land originally, but there's no more investment to be made after that. They can invest in a nicer building or grounds, or compete on services such as "free" utilities or quicker repairs, but those are above and beyond the "rent-seeking" part of his revenue. He could just rent an empty lot, like a trailer park or campground. This is analogous to, for example, telephone lines. They cost a lot to initially build out, but once they're there, the phone company only has to charge people for access. They provide a service back at the switching station, but most of what they're getting money for is owning lines that already exist. It's harder to separate rent from their other revenue, but it's there. It generalizes to all revenue that is of the "sit back and collect checks" variety. Cellular carriers sitting on a chunk of spectrum they can sell access to. They can just rent it out to MVNOs if they don't want to provide those services themselves. Film studios sitting on a catalog of work they can sell, license, etc. So yes, IP revenues are definitely rents.

baddox 12y ago
> Landlords don't make money by providing a service or selling goods. They make money by sitting on something no one else is allowed to have. Is that second sentence any less true of any other trade, including the traditional selling of goods? After all, the only reason you have to give a food vendor money for food is that the vendor (or someone on the vendor's behalf) will use violence if necessary to defend the vendor's exclusive claim on that food. > Sure, they bought the land originally, but there's no more investment to be made after that. That isn't true. There are maintenance costs and property tax, and less obvious things like the opportunity cost of risk of purchasing a house in order to rent it out.
- skilesare 12y ago
  It is a little bit different. Commodities can be produced by multiple people and end up being the same thing. Now there are other factors involved I can contribute to economic rent being charged. For example, the hotdog vendor at the bottom of my building can charge 1.05 for the hotdog, whereas the guy at the other side of the park will have to charge .65 for me to walk past the guy charging 1.05. It's tough to get away from economic rent.

esoltas 12y ago

Soltas (the author) here. What I meant by "rents are not always bad" is that "rent" is a positive (i.e., value-free) concept, not a normative (moral) one. "Rent" in economics merely implies that the profits are in excess of a competitive-equilibrium outcome/allocation. In this case, the competitive outcome is perverse -- nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. (It's a prisoners' dilemma.) So profits from a patent are rent, insofar as they come from the protection per se. As I acknowledge, I think those rents are economically useful -- as an economist, I don't have anything interesting to say as to whether they are morally acceptable, as you discuss in your post. For example, it's a fair argument to say that "ideas should be free," and that the purpose of IP is not to enrich/honor/etc the innovator but merely to give him the incentive to contribute the idea to the social good. Or you might argue the opposite of that. I don't really have an opinion. Hopefully this clarifies the way economists use the word "rent."

crdoconnor 12y ago
>nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. This just isn't true. It's human nature to innovate, just as it is human nature to sing, play music and dance. There are many times when the IP system is not only absent, but actively working against the creator, yet it doesn't stop the process of innovation. It just slows it down. The government also innovates and foots the bill for R&D, and there is a good case to be made that the most valuable technological innovations in our society do actually come from them.
- jlebar 12y ago
  >> nobody innovates because, without IP, you pay for the cost of R&D but "copycats" can steal the idea without paying. > > This just isn't true. It's human nature to innovate, just as it is human nature to sing, play music and dance. Straw man fallacy. The OP wasn't suggesting that literally nobody would innovate, just that innovation, particularly innovation paid for by private parties of the sort of thing which is expensive and easily copied, would significantly decline. If you have ever paid to see someone sing, play music, or dance, you have participated in an activity which likely would not have occurred without there being a monetary incentive for that person to partake of the activity you paid to enjoy.