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On the Macroeconomic Effects of Establishing Tradability in Weak Property Rights

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The New Economy is closely associated with computing & communications technology, notablythe Internet. We discuss property rights to, and trade in, the difficult-to-define intangible assetsincreasingly dominating the New Economy, and the possibility of under-investment in theseassets. For a realistic analysis we introduce a Schumpeterian market environment (theexperimentally organized economy). Weak property rights prevail when the rights to access,use, and trade in intangible assets cannot be fully exercised. The trade-off between the benefitsof open access on the Internet, and the incentive effects of strengthened property rights, dependboth on the particular strategy a firm employs to secure property rights, and the protectionoffered by law. Economic property rights can be strengthened if the originator can findinnovative ways to charge for the intangible assets. The extreme complexity of the NewEconomy and the large number of possible innovative private contract arrangements make itmore important to facilitate the use and enforcement of private individualized contracts toprotect intellectual property than to rely only on standard mandatory patent and copyright law.Enabling law is one proposed solution. Current patent legislation in the US has led to costlylitigation processes weakening the position of small firms and individuals in patent disputes.The property rights of such firms and individuals could be strengthened with insurance orarbitration procedures.Key words: Competence bloc theory, Enabling law, Experimentally Organized Economy, NewEconomy, Weak property rights, Tradability, Underinvestment.

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Gunnar Eliasson, Clas Wihlborg

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