Buccafusco and Sprigman (2010)
|Buccafusco and Springman (2010)|
|Title:||Valuing intellectual Property: An Experiment|
|Author(s):||Buccafusco, C., Sprigman, C. J.|
|Citation:||Buccafusco, C. J., & Sprigman, C. J. (2010). Valuing Intellectual Property: An Experiment. Cornell Law Review.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|Linked by:||Buccafusco (2012), Sprigman, Buccafusco and Burns (2013)|
|About the Data|
|Data Description:||The subjects included 207 women and 287 students. The subjects’ mean age was 24, and their mode age was 22.|
|Data Type:||Primary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
Abstract: In this article we report on the results of an experiment we performed to determine whether transactions in intellectual property (IP) are subject to the valuation anomalies commonly referred to as “endowment effects”. Traditional conceptions of the value of IP rely on assumptions about human rationality derived from classical economics. The law assumes that when people make decisions about buying, selling, and licensing IP they do so with fixed, context-independent preferences. Over the past several decades, this rational actor model of classical economics has come under attack by behavioral data showing that people do not always make strictly rational decisions. Perhaps the most important research in this field is that related to the “endowment effect” – the discovery that, contrary to economic predictions, people value the same object more when they own it than when they do not.
To date, the endowment effect has been observed for a variety of goods including mugs, lottery tickets, and hunting permits. Our experiment establishes a substantial valuation asymmetry between authors of poems and potential purchasers of them. As we explain in detail in the article, we constructed a market for the poems that was modeled on a market for licensing IP. The observed differences in valuation indicate that IP licensing markets may be substantially less efficient that previously believed. Our results suggest that (1) the preferences of IP creators, owners, and purchasers are unstable and dependent on the initial distribution of property rights in creative works, and (2) large gaps arise between purchasers’ willingness to pay and sellers’ willingness to accept even though the poems are non-rival property and the contemplated alienation of the property is therefore only partial.
Our findings suggest that private transactions in creative goods may face significant transaction costs arising from cognitive biases that drive the price that creators and owners of IP are likely to demand for transfers considerably higher than what buyers will, on average, be willing to pay. This does not mean, of course, that transactions in IP will not take place – we see such transactions happening out in the world every day. Our research suggests, however, that IP transactions may occur at a level that is significantly suboptimal, and that the baleful effect of cognitive and affective biases is likely to be more serious for transactions in works of relatively low commercial value, or for which no well-established custom or pattern helps to inform valuation. These results have considerable implications for the structuring of IP rights, IP formalities, IP licensing, and fair use.
Main Results of the Study
- Financial incentives only increased creative output when; individuals where motivated by financial incentive to do closed creative tasks (tasks with a known goal or end) and in a group setting where the group had a common goal (this treatment group mimicked the collective corporate culture).* In other circumstances like in open creativity tasks (no knows creative target/goal) and when no team incentive were produced for groups the monetary incentives did not increase creative output.* Also found that men where more likely to take risks than women and wagered more money under know risk (coinflip), however under ambiguous risk (the exact probabilities of were unknown to the test subjects) men and women bet similar amounts to what the women bet under known risk which would suggest men are more averse to ambiguous risk than women.
Policy Implications as Stated By Author
- Stronger copyright laws do not necessarily increase creative output suggested by the ambiguous results from historical data to increases and decreases in the stregnth of copyright laws.* The results showed that programs to induce a more collective corporate atmosphere could be worthwhile, since individuals performed better with financial incentives when there was a collective corporate culture.
Coverage of Study
|Level of aggregation:||Individual|
|Period of material under study:||2010|