There is a really interesting post about intellectual property and the woes facing the entertainment industry by James Graham. Given that I have been meaning to write about this issue for a long time, I may as well use this as the opportunity to finally get round to it.

But first, a couple of notes on copyrights and patents. James Graham says:

Both global patent and copyright laws have been extended in recent decades. The original idea behind such laws appears to have been forgotten and pure greed has taken its place. Globalisation means that the earnings potential from a new idea has massively increased; yet at the same time we’ve artificially increased it further still, and long lives will extend this still further. To take one example, J.K. Rowling, a rich woman who can afford the very best in healthcare, is likely to have a very long life. Let’s assume she lives to 100, in 2065. The copyright on her books will stay with her estate until 2135. That means that her great-great-great grandchildren will still be profiting from their ancestor’s books. Is there really any justification for that?

I quite agree. The traditional justification for strong copyright laws is to encourage innovation. You come up with a great idea, and we’ll make sure nobody else can profit from it.

Sound enough at first. But how long should this monopoly last? Is “life plus 70 years” or even “life plus 50 years” justified? Is 50 years even justified? Hardly.

Copyright was big(ish) news in the UK last year when there was a push by artists such as Cliff Richard, Paul McCartney and Bono (where’s his “altruism” now?) to get copyright extended from 50 years. Coincidentally (or not), Cliff Richard’s and Paul McCartney’s most successful recordings are soon to enter the public domain.

And let us bear in mind that this was for copyright on the recordings. So the copyright extension would have meant artists earning even more money from something that they did once, over 50 years ago, regardless of whether or not they even wrote the song. If only the rest of us could earn so much money for so long from doing a job just once!

So do strong copyright laws encourage innovation? It is difficult to imagine that Cliff Richard entered the recording booth in 1958 thinking about the money he’d be making from it in 2007. He will have been most concerned about the money he’d make from it in 1958 and a few years after that. Nobody but the most egotistical and talented musicians would imagine raking it in for any longer than 50 years.

Having copyright lasting “only” 50 years didn’t stifle innovation in the 1950s and 1960s — the rock n roll and beat music booms happened regardless. And looking at the subsequent careers of these early innovators of pop music, it is difficult to argue that these strong copyright laws have done anything but stifle innovation. After all, why would you bother to make more great music if you are still making money from 50-year-old music?

That makes sense when you think about it. Copyright laws essentially ensure that an artist has a monopoly. And monopolies are detested because of their effects on social welfare.

Cliff Richard isn’t concerned about innovation. His only incentive is to get his grubby hands on even more money. What a relief that the government rejected the proposal in the end.

So what is the optimal length of copyright? A paper by Rufus Pollock suggests that it is approximately 15 years. A far cry from the life plus 70 years for some works, or the 95 years that Cliff Richard called for.

It is a similar story with patents. The justification for patents is more or less the same as that for copyright laws. But research (PDF) by James Bessen and Eric Maskin (who I wrote about a couple of weeks ago) suggests that protection of intellectual property should be more “balanced”.

The ideal patent policy limits “knock-off” imitation, but allows developers who make similar, but potentially valuable complementary contributions.

Empirical evidence backs this up, as an extension of patent protection into the realm of software in the USA in the 1980s did not lead to an increase in innovation.

An interesting point about Rufus Pollock’s research is that he suggests that copyright laws should be weakened as the costs of production and reproduction decrease. And the past decade has seen a massive reduction in the costs of production due to advances in technology — particularly the internet.

And it is the entertainment industry’s complete inability to adapt to this reality that has left it in the mess it is currently in. That will be the subject of my next post in the series.

A few weeks ago I attended a talk by Eric Maskin, who this year was awarded the Nobel Memorial Prize in Economics for having laid the foundations of mechanism design theory.

Eric Maskin seems to be quite an interesting person. He lives in a house that was once occupied by Albert Einstein. I imagine that would make a great pub quiz question. Perhaps even more startlingly, Eric Maskin dresses up as Albert Einstein at Halloween.

Professor Maskin came to Edinburgh en route to Sweden to talk about voting systems, a topic related to mechanism design.

Arrow’s impossibility theorem implies that no voting system is perfect at satisfying a number of desired criteria. These criteria are:

• The Pareto principle — if everyone prefers x to y then y should not be elected
• Anonymity — every voter should be treated equally
• Neutrality — every candidate should be treated equally
• Independence of irrelevant alternatives — the ability of x and y to win an election should not be affected by the entrance of a candidate z
• Transitivity — if x is preferred to y and y is preferred to z then x should be preferred to z

That fourth one is probably the one that grates with most proponents of electoral reform. We can reel off instances where independence of irrelevant alternatives has been violated. For instance, had Ralph Nader not run in 2001 then Al Gore would almost certainly have become President of the USA. A fragmented left in France allowed Jean Marie Le Pen to enter the final run-off with Jacques Chirac in 2002, when there was every chance that Lionel Jospin would have won such a face-off.

Interestingly, Eric Maskin thinks that if the SDP / Liberal alliance hadn’t run in 1983, Michael Foot’s Labour party would have won the general election. What a thought!

Just thinking about this sent me under a dark cloud. The design of institutions clearly has a disturbingly massive effect. The voting system is much more important than the voters themselves, particularly when you couple this thought with the paradox of voting.

The system that Eric Maskin concentrated on is Simple Majority Rule. This method has voters submitting rankings of candidates, just as in Single Transferable Vote. Then you take these rankings and use them to compare candidates in a head-to-head scenario, two candidates at a time. By comparing just two candidates at a time, you get rid of the problem with independence of irrelevant alternatives. If one candidate is preferred over another by >50% of the voters, he wins the election.

Well, almost. Unfortunately, this system is susceptible to Condorcet’s paradox. For instance, >50% of voters may prefer Labour to the Conservatives, >50% of voters may prefer the Conservatives to the Liberal Democrats and >50% of voters may prefer the Lib Dems to Labour. In other words, simple majority rule violates the transitivity principle.

The view of Eric Maskin is that to worry about transitivity is too pessimistic. For him, the Condorcet paradox is possible, but highly unlikely. This is because candidates can be lined up on a spectrum from left to right, and voters tend to vote in accordance with these positions.

As such, he suggests that simple majority rule is good as a least-worst voting system as it meets all of the desired criteria apart from transitivity which is unlikely to be violated. No other voting system works this well as often.

Of course, because the possibility of the Condorcet cycle even exists, there must be a tie-breaker. This is probably cause for a whole new debate in itself!

The talk provided some food for thought. For several years now I have been convinced that there needs to be a move away from the First Past the Post system. For the past few years I have been strongly in favour of Single Transferable Vote.

During the talk, one person in the audience specifically asked Eric Maskin about Single Transferable Vote. He said that STV can still violate independence of irrelevant alternatives, and pointed out that a similar system to STV was used in the 2002 French election.

I’m not entirely convinced that STV is all that similar to the run-off system used in French Presidential elections. The main problem with the French Presidential election (and the other examples that have been highlighted), as Proferssor Maskin pointed out, was the fact that voters were unable to rank candidates. Well, voters can rank candidates in STV.

Nevertheless, Condorcet cycle aside, I find the simple majority rule approach quite appealing. Yet we hear very little about it. If you are interested in electoral reform, I would say it is worth looking into a bit.

• Slides from Professor Maskin’s presentation (PDF file)
• An accessible article on this topic from the Scientific American (PDF) by Partha Dasgupta and Eric Maskin
• A more academic primer on the topic (PDF)
• More about Eric Maskin from Marginal Revolution
• Interview with Eric Maskin conducted by Adam Smith (heh). This interview does a really great job of outlining what mechanism design theory is and how it affects our everyday lives