Economic Foundations of Intellectual Property Rights

My work in the economics of innovation began some forty years ago. I realized, as I was beginning my work on the Economics of Information, that knowledge and information are very similar. In fact, you can view information as a particular kind of knowledge, and so the problems that I was analyzing at the time, such as how well the market economy deals with information, corresponded to the question of how well the market economy deals with knowledge. My work showed that the standard paradigm (the neoclassical model, which argued that well-functioning markets solved all economic problems) just did not work when information was imperfect and endogenous (that is, could be affected by what individuals or firms did), and, by extension, when knowledge is endogenous (that is, when technology is changing). Adam Smith’s theory argued that individuals in pursuit of their self-interest (firms in pursuit of maximizing profits) were led as if by an invisible hand to the general well-being of society. One of the important results of my work, developed in a number of my papers, was that the invisible hand often seemed invisible because it was not there.