Nova workboard

a blog from young economists at Nova SBE

C(o)ase for Piracy

Government’s reasoning often goes beyond my comprehension, and even though I am prepared to admit that’s just an unfortunate flaw on my side, I still quite enjoy it when I stumble upon economic literature that makes me feel less of a maverick for thinking that, for example, taxing copyright is, in any universe, an acceptable economic decision.

In this blog post, I shall take it a bit further and argue that all online downloading platforms for any kind of content should be free. How am I going to do that? Using Robert Coase.

Coase believed that in face of externalities – byproducts that are generated in each individual’s search to maximize their own happiness –, the government should design laws and regulations, property rights, etc. in such a way as to mimic the agreements that free people would have reached in their own interest, had negotiation been practical. Any other way of proceeding would leave open the possibility of making both parties better off. So, ‘who is the guilty party?’ is actually the wrong question to ask. The question should instead be: ‘how can this problem be solved in the cheapest way?’

So how could piracy be eradicated in the cheapest way?

Well, the common criticize to piracy is that a thriving, legal and freely accessible online content platform would ultimately punish its consumers – sales would go to zero and that would destroy the incentive to for producers to keep operating. In this view, however, the only reason why any consumer would buy content was because they didn’t know they could download it online and for free. But that story is too simple.

We know that the threat of being punished isn’t the only reason why people pay legally for something rather than stealing it. There are costs of theft other than monetary costs, like guilt, moral norms – all these factors can be used to encourage socially beneficial behavior. Think about it. The pleasure of knowing you are sponsoring your favorite actor, or musician, or director to produce more. Or surfing through Google Art versus staring at a Van Gogh painting somewhere in the world.

So while it is possible that widespread access to free content would hurt art sales, the reductions might be mitigated by social norms and culture. The result would be some lost income for content creators and artists in general, because, yes, some people would never pay. But the potential for increased sales on the other side through indirect compensation is huge. Wider exposure for producers can do wonders. Take the music industry: it is already true that artists’ main source of revenues are not CD sales – and they seem to be doing fine. If we turn to film, Hollywood adapted too, now focusing on million dollar mind-blowing special effects that can only be fully taken in unless you’re sitting in a theatre room. And the examples carry on whether you consider TV shows or even writers. After all, getting your name out there is what matters the most, right?

But just for the sake of the argument, let’s even say that none of these reactions were true and that no social norm would be enough to deter content rifles. Even so, the arts could thrive if free online download platforms were allowed to operate freely because it is likely that new technologies will emerge so as to allow content producers to charge for their work at the same time that consumers benefit from the opportunities provided by those platforms. What might those technologies look like? We have some out there already: iTunes, Netflix, Hulu. My point is: the greater the threat these free platforms pose to content creators, the greater the incentive to create those technologies. And in that sense, that threat might be self-correcting.

The main point here is: adaptation. That is not only – as has been shown by Coase – the cheapest, but also the most interesting, most exciting and most fruitful way to deal with an externality.



Author: studentnovasbe

Master student in Nova Sbe

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