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Volume 19, Number 2, Spring 2005
Symposium: Social Security Reform
Shortfalls in the Long Run: Predictions about the Social Security Trust Fund by James R. Hines Jr. and Timothy Taylor
Many proposals for addressing the long-term issues of Social Security involve benefit reductions both in Disability Insurance and in Old Age and Survivors Insurance. However, the proposals in the papers that follow in this symposium do not alter the long-term financial balance of Disability Insurance, and instead focus on the Old Age and Survivors Insurance program. Thus, the discussion in this introduction will also focus on the OASI trust fund.
Saving Social Security by Peter A. Diamond and Peter R. Orszag
Social Security is one of America's most successful government programs. It has helped millions of Americans avoid poverty in old age. To be sure, the program faces a long-term deficit and is in need of updating. But Social Security's long-term financial health can be restored: the projected deficit is small enough that it can be eliminated through a progressive reform that combines modest benefit reductions and revenue increases.
Structural Reform of Social Security by Martin Feldstein
Governments around the world have enacted or are currently considering fundamental structural reforms of their Social Security pension programs. The key feature in these reforms is a shift from a pure pay-as-you-go tax-financed system, in which taxes on current workers are primarily distributed to current retirees, to a mixed system that combines pay-as-you-go benefits with investment-based personal retirement accounts. This paper discusses how such a mixed system could work in practice and how the transition to such a change could be achieved. It then analyzes the economic gains that would result from shifting to a mixed system. I turn next to the three problems that critics raise about any investment-based plan: administrative costs, risk, and income distribution. Finally, I comment on some of the ad hoc proposals for dealing with the financial problem of Social Security without shifting to an investment-based system.
Symposium: Intellectual Property Rights
Intellectual Property: The Law and Economics Approach by Richard A. Posner
With the rise of the law and economics movement, the focus of economic analysis of intellectual property has begun to shift to more concrete and manageable issues concerning the structure and texture of the complicated pattern of common law and statutory doctrines, legal institutions and business practices relating to intellectual property. Among the issues discussed in this paper are the length of protection for intellectual property, the rules that allow considerable copying of intellectual property without permission of the originator, the rules governing derivative works, and alternative methods of providing incentives for the creation of intellectual property. The emphasis is on copyright law, which, perhaps because of its complex legal structure and the relative neglect by economists of the arts and entertainment, has tended to be slighted in the conventional economic analysis of intellectual property, relative to patent law, where economic analysis can draw on an extensive literature concerning the economics of innovation. The article also touches on trademarks and trade secrets, and explores some parallels and contrasts between the legal treatment of physical and intellectual property.
Probabilistic Patents by Mark A. Lemley and Carl Shapiro
Economists often assume that a patent gives its owner a well-defined legal right to exclude others from practicing the invention described in the patent. In practice, however, the rights afforded to patent holders are highly uncertain. Under patent law, a patent is no guarantee of exclusion but more precisely a legal right to try to exclude. Since only 0.1% of all patents are litigated to trial, and since nearly half of fully litigated patents are declared invalid, this distinction is critical to understanding the economic impact of patents. The growing recognition among economists and legal scholars that patents are probabilistic property rights has significant implications for our understanding of patents in four important areas: (1) reform of the system by which patents are granted; (2) the legal treatment of patents in litigation; (3) the incentives of patent holders and alleged infringers to settle their disputes through licensing or cross-licensing agreements rather than litigate them to completion; and (4) the antitrust limits on agreements between rivals that settle actual or threatened patent litigation.
The Economics of Technology Sharing: Open Source and Beyond by Josh Lerner and Jean Tirole
This paper reviews our understanding of the growing open source movement. We highlight how many aspects of open source software appear initially puzzling to an economist. As we have acknowledged, our ability to answer confidently many of the issues raised here questions is likely to increase as the open source movement itself grows and evolves. At the same time, it is heartening to us how much of open source activities can be understood within existing economic frameworks, despite the presence of claims to the contrary. The labor and industrial organization literatures provide lenses through which the structure of open source projects, the role of contributors, and the movement's ongoing evolution can be viewed.
Copying and Copyright by Hal Varian
Today most newly created textual, photographic, audio, and video content is available in digital form. Even older content that was not "born digital" can relatively easily converted to machine-readable formats. At same time, the world has become more networked, making it easy to transfer digital content from one person to another. The combination of technological progress in both digitization and computer networking has been a challenge for traditional ways of managing intellectual property. Some observers have even questioned whether current models for intellectual property can or should survive in a digital world. For example, there is widespread concern about piracy of popular music and film, both via the network and via bootleg CDs and DVDs. There is also concern about the economic viability of the current model for scholarly publication, or, for that matter traditional forms of publishing such as newspapers and TV network news. These developments have led to a revival of interest in the economics of copying and copyright. In this brief review we examine some of the economic issues in this area, and describe some of the insights that have emerged from this work. We end with some reflections on alternative business models for provision of creative works.
Articles
Lessons About Markets from the Internet by Glenn Ellison and Sara Fisher Ellison
Many of us have grown used to, tired of, and finally downright skeptical of claims of the transformative powers of the Internet. It was to usher in the New Economy, but we seem mostly to have the Old. It would transform retail, but Toys 'R' Us has outlasted EToys. Frictionless commerce would be the norm, but plenty of friction still exists. The Internet was also claimed to require a whole new economics with all new laws. While this, too, was very far from the truth—existing theories have mostly done quite well—the Internet has had a substantial effect on economic thought. In this paper, we discuss some ways in which the Internet has affected how economists think about markets.
Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire? by W. Scott Frame and Lawrence J. White
The roles of Fannie Mae and Freddie Mac have become increasingly controversial in the modern world of residential mortgage finance. We describe the special features of these two companies and their roles in the mortgage markets. We then discuss the controversies that surround them and offer recommendations for improvements in public policy.
Direct Democracy Works by John G. Matsusaka
The purpose of this essay is to describe the practice and theory of the increasingly important political phenomenon of direct democracy and the main lessons from the scholarly literature. Many questions remain to be answered, but the emerging view is that direct democracy works—allowing the general public to participate in lawmaking often seems to improve the performance of government.
Features
Data Watch: Tort-uring the Data by Eric Helland, Jonathan Klick and Alexander Tabarrok
This article discusses data available for researchers interested in the U.S. civil justice system and illustrates the uses of the various datasets with some interesting findings. Our focus is on torts, defined as an injury to person or property that is not covered by contract and for which civil liability may be imposed. The most common tort is the result of an auto accident. We discuss data useful for analyzing trends, data that are useful for cross-sectional research and finally data covering only a specific type of civil litigation such as medical malpractice. We conclude by discussing the limitations of all civil litigation data.
Recommendations for Further Reading by Timothy Taylor
Comments: Bernard Wasow; Kenneth J. Arrow, Partha Dasgupta and Lawrence Goulder
Notes