IPRs' Economics

In California Management Review's last issue, Costello & Costello have done a very good job trying to develop a theoretical framework for the determinants of the level of definition of intellectual property rights (IPRs) over resources. Their model is based on the assumption that IPRs are defined to the extent that the benefits of definition exceeds the cost of definition.

The authors build the cost-benefit structure of IPR's definition based on five major economic attributes:

1. Capture costs and rent dissipation created by non-exclusivity (non-excludability);

2. Exchange and policing costs;

3. Cost of reduced ivestment created by non-exclusivity;

4. Exchange value of resource;

5. Social costs of exclusivity.

Costello & Costello's framework indicates that stricter enforcement of IPRs may not always be in the best interests of the firm. They conclude that knowledge-based resources' enforcement efforts diminish in result of its particular economic attributes.

COSTELLO, Ayse O. and Costello, Thomas G., "Defining Property Rights: The Case of Knowledge-Based Resources". California Management Review, Berkley (CA), vol. 47, no. 3, Spring 2005.