Contra Hard IP (styled after Kevin Murphy)

France made me consider stating my concerns with hard IP protections in another way. Here's a tentative sketch of an argument, inspired by Kevin Murphy's analysis of the stimulus earlier this year.

Kevin Murphy developed an equation including all the meaningful variables he could imagine to evaluate the social utility of any stimulus. I'm going to attempt a similar approach to determine the social utility of hard IP. (Note: I have no reason to suspect Kevin Murphy would endorse the following argument, he simply inspired it.)

By "hard IP," I mean any regime which confers monopolistic control upon IP creators.

So let's lay out a few relevant variables!

u2 = social utility conferred by the consumption of all IP produced under hard IP controls, and that
u1 = social utility of all IP produced without hard IP

There's an argument that u1 > u2, because it has cheaper inputs. Lawrence Lessig argues [1, 2, 3] that culture would be improved if we encouraged this type of cultural sampling and remixing. Bossearts et al. demonstrate in a recent Science article how collaborative IP models can encourage an even greater number of scientific discoveries than the hard IP of patents. Softer IP allows many more interested consumers to access the most useful intellectual properties. It increases utility by, and this may be a misuse of this term, reducing producer surplus. The utility of intellectual products would not be limited to those willing to pay.

Let's set these arguments aside for now and assume u2 > u1, as hard IP advocates insist. Let's suppose that higher quality products are incented by hard IP, and these products are of such higher quality that this quality increase outstrips any other gains u1 might confer upon society. The difference here, (u2 - u1), will measure the relative increase in utility flowing from intellectual products when moving from a soft IP society to a hard IP society. This increase is disputed, but let's assume it exists.

Let us also take...
c = total cost of all protected goods sold
g = deadweight loss of government resources used to police the property controls

We should prefer hard IP iff:
u2 - u1 > c + g

It may be tempting to exclude c from our analysis (and I'd actually like an economist to weigh in on its consideration). You might say, "well, that money is going to IP creators, so that cost is not really 'lost' from the system." I worry that objection is just a form of the broken window fallacy. Costs are costs, you can't wipe them out by following the money to see what later good it does. The purchasers of IP in a hard IP regime spent those dollars on IP rather than diverting those dollars to some other productive activity, so they suffered a cost due to the hard IP regime.

We know that c > u2, because IP provides monopolistic protections. Monopolistic rents inevitably exploit consumer surplus, resulting in a deadweight loss. So if these monopolistic inefficiencies are "m", then c = (u2 + m).

So, back to the math, we should prefer hard IP when:
u2 - u1 > u2 + m + g, or:
-u1 > m + g

Some who attack a soft IP solution might insist that the quality of created content under any alternative system would descend so as to be nonexistant. So let's set u1 at 0, to humor this camp completely.

Under that assumption, we should prefer hard IP so long as:
0 > m + g

The only way we would want to prefer hard IP is if the government cost of such a regime was negative, or that the benevolent individuals owning these properties never extracted any monopolistic rents, but instead provided sub-profitable discounts on their products.

I especially worry about the role of "g" in small territories who are required to implement hard IP regimes before joining the WTO.

This gives a rough sketch of my skepticism of our current "strong" IP regime. This argument is a bit of a work in progress, so I welcome anyone to suggests variables I may have left out, or inappropriately assessed. It's a radical conclusion, suggesting we'd be better off with no IP than IP protected by government enforced monopolies, so please help me refine the analysis if you can.

UPDATE 4/16: edited for consistency in terminology