March 2006, Volume 92, Issue 1
Intellectual Property, Innovation, and Decision Architectures
by Tim Wu
92 Va. L. Rev. 123 (2006)
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This essay proposes a new way to assess the desirability of intellectual property rights.
Traditionally, intellectual property assignment is assessed based on a incentive/monopoly pricing tradeoff. I suggest they should be further assessed by their effects on the decision architectures surrounding the property right - their effects on how firms make product innovation decisions. The reason is that different decisional structures for product development can be are fundamental to the performance of firms, industries, and even the economy as a whole.
The organizational economics literature can help with this assessment. It makes an important and useful distinction between hierarchical (centralized) and polyarchical (decentralized) decision architectures. The key point of this paper is that government's decisions with respect to property assignments can steer decision architectures toward a polyarchical or hierarchical architecture, respectively.
Each may be optimal in difference scenarios. In industries where technologies are stable and where the industry is flat or in decline, avoiding mistakes is more important, and uncertainty may be more limited, meaning that a hierarchy supported by strong rights may produce a more profitable outcome. Conversely, strong IP rights may undesirable in fast growing-industries where the technologies in flux, because overly centralized decision-making may block the emergence of the most innovative ideas.
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