Arrow information paradox

Last updated

The Arrow information paradox (information paradox for short, or AIP [1] ), and occasionally referred to as Arrow's disclosure paradox, named after Kenneth Arrow, American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks, [2] is a problem faced by companies when managing intellectual property across their boundaries. It occurs when they seek external technologies for their business or external markets for their own technologies. It has implications for the value of technology and innovations as well as their development by more than one firm, and for the need for and limitations of patent protection.

Contents

Arrow's information paradox theory was set out in a 1962 article by K. J. Arrow. [3] Cornell Law School professor Oskar Liivak has written in a paper for a conference at Stanford University that Arrow's article "has been one of the foundational theoretical pillars of the incentive based theory of patents as Arrow’s work is thought to rule out a strictly market-based solution". [4]

A fundamental tenet of the paradox is that the customer, i.e. the potential purchaser of the information describing a technology (or other information having some value, such as facts), wants to know the technology and what it does in sufficient detail as to understand its capabilities or have information about the facts or products to decide whether or not to buy it. [5] [6] Once the customer has this detailed knowledge, however, the seller has in effect transferred the technology to the customer without any compensation. [2] This has been argued to show the need for patent protection. [4]

If the buyer trusts the seller or is protected via contract, then they only need to know the results that the technology will provide, along with any caveats for its usage in a given context. [7] A problem is that sellers lie, they may be mistaken, one or both sides overlook side consequences for usage in a given context, or some unknown unknown affects the actual outcome.

Discussions of the value of patent rights have taken Arrow's information paradox into account in their evaluations. [8] The theory has been the basis for many later economic studies. [9] These include theories that pre-patent innovation can be carried out only by a single firm. [10] [11]

See also

Notes

  1. ↑ Piazza, Mario; Pedicini, Marco (2017-01-31). What Arrow's information paradox says (to philosophers).
  2. 1 2 Takenaka, Toshiko (2008). Patent Law and Theory: A Handbook of Contemporary Research. Research Handbooks in Intellectual Property. Edward Elgar Publishing. pp. 4–5. ISBN   978-1-84542-413-8.
  3. ↑ Arrow, Kenneth J. Economic Welfare and the Allocation of Resources for Invention, in The Rate and Direction of Inventive Activity, 609 (Nat’l Bureau of Econ. Research ed. 1962).
  4. 1 2 Liivak, Oskar. The (Relatively) Easy Case for Patents on Inventions. (2012). Retrieved August 7, 2014.
  5. ↑ Leppälä, Samuli, Cardiff University, Arrow's Paradox and Unprotected Markets for Information. (2013) Retrieved August 7, 2014.
  6. ↑ Gerben Bakker, London School of Economics and Political Science. Trading Facts: Arrow’s Fundamental Paradox and the Origins of Global News Networks [ permanent dead link ] in: Peter Putnis, Chandrika Kaul and Jürgen Wilke eds., International Communication and Global News Networks: Historical Perspectives. (New York, Hampton Press / International Association for Media and Communication Research, 2011), 9–54. Winner of the Business History Conference’s / Alfred P. Sloan Foundation’s Ralph Gomory Article Prize 2013. Retrieved August 7, 2014.
  7. ↑ Burstein, Michael J. Exchanging Information without Intellectual Property. Archived February 2, 2013, at the Wayback Machine . Texas Law Review Vol. 91. pp. 227–282. Retrieved August 7, 2014.
  8. ↑ Thambisetty, Sivaramjani. Patents as Credence Goods. Oxford Journal of Legal Studies, Vol. 27, No. 4 (2007), pp. 707–740. Retrieved August 7, 2014.
  9. ↑ Dosi, Giovanni, et al. Information, Appropriability, and the Generation of Innovative Knowledge Four Decades after Arrow and Nelson: An Introduction. Oxford Journal of Industrial and Corporate Change. (2006) Online ISSN 1464-3650. Retrieved August 7, 2014.
  10. ↑ Bar-Gill, Oren and Gideon Parchomovsky Intellectual Property Law and the Boundaries of the Firm. Harvard John M. Olin Center for Law, Economics and Business. June, 2004. ISSN 1045-6333. Retrieved August 7, 2014.
  11. ↑ King, Andrew and Karim R. Lakhani. Using Open Innovation to Identify the Best Ideas. MIT Sloan Management Review Magazine: Fall 2013. September 11, 2013. Retrieved August 7, 2014.

Related Research Articles

<span class="mw-page-title-main">Intellectual property</span> Ownership of creative expressions and processes

Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, copyrights, trademarks, and trade secrets. The modern concept of intellectual property developed in England in the 17th and 18th centuries. The term "intellectual property" began to be used in the 19th century, though it was not until the late 20th century that intellectual property became commonplace in most of the world's legal systems.

<span class="mw-page-title-main">Non-disclosure agreement</span> Contractual agreement not to disclose specified information

A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract or part of a contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to. Doctor–patient confidentiality, attorney–client privilege, priest–penitent privilege and bank–client confidentiality agreements are examples of NDAs, which are often not enshrined in a written contract between the parties.

<span class="mw-page-title-main">Patent</span> Type of legal protection for an invention

A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention. In most countries, patent rights fall under private law and the patent holder must sue someone infringing the patent in order to enforce their rights.

<span class="mw-page-title-main">Trade secret</span> Business information kept secret to gain or maintain a competitive advantage

Trade secrets are a type of intellectual property that includes formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret. Intellectual property law gives the owner of a trade secret the right to restrict others from disclosing it.

Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people, the value relating to its relationships, and everything that is left when the employees go home, of which intellectual property (IP) is but one component. It is the sum of everything everybody in a company knows that gives it a competitive edge. The term is used in academia in an attempt to account for the value of intangible assets not listed explicitly on a company's balance sheets. On a national level, intellectual capital refers to national intangible capital (NIC).

<span class="mw-page-title-main">Disruptive innovation</span> Technological change

In business theory, disruptive innovation is innovation that creates a new market and value network or enters at the bottom of an existing market and eventually displaces established market-leading firms, products, and alliances. The term, "disruptive innovation" was popularized by the American academic Clayton Christensen and his collaborators beginning in 1995, but the concept had been previously described in Richard N. Foster's book "Innovation: The Attacker's Advantage" and in the paper Strategic Responses to Technological Threats.

<span class="mw-page-title-main">Kenneth Arrow</span> American economist (1921–2017)

Kenneth Joseph Arrow was an American economist, mathematician, writer, and political theorist. Along with John Hicks, he won the Nobel Memorial Prize in Economic Sciences in 1972.

<span class="mw-page-title-main">Information asymmetry</span> Concept in contract theory and economics

In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other.

Technology transfer (TT), also called transfer of technology (TOT), is the process of transferring (disseminating) technology from the person or organization that owns or holds it to another person or organization, in an attempt to transform inventions and scientific outcomes into new products and services that benefit society. Technology transfer is closely related to knowledge transfer.

Patents are legal instruments intended to encourage innovation by providing a limited monopoly to the inventor in return for the disclosure of the invention. The underlying assumption is that innovation is encouraged because an inventor can secure exclusive rights and, therefore, a higher probability of financial rewards for their product in the marketplace or the opportunity to profit from licensing the rights to others. The publication of the invention is mandatory to get a patent. Keeping the same invention as a trade secret rather than disclosing it in a patent publication, for some inventions, could prove valuable well beyond the limited time of any patent term but at the risk of unpermitted disclosure or congenial invention by a third party.

The Adelphi Charter on Creativity, Innovation and Intellectual Property is the result of a project commissioned by the Royal Society for the encouragement of Arts, Manufactures & Commerce, London, England, and is intended as a positive statement of what good intellectual property policy is. The Charter was issued in 2004.

Open innovation is a term used to promote an information age mindset toward innovation that runs counter to the secrecy and silo mentality of traditional corporate research labs. The benefits and driving forces behind increased openness have been noted and discussed as far back as the 1960s, especially as it pertains to interfirm cooperation in R&D. Use of the term 'open innovation' in reference to the increasing embrace of external cooperation in a complex world has been promoted in particular by Henry Chesbrough, adjunct professor and faculty director of the Center for Open Innovation of the Haas School of Business at the University of California, and Maire Tecnimont Chair of Open Innovation at Luiss.

Intellectual property assets such as patents are the core of many organizations and transactions related to technology. Licenses and assignments of intellectual property rights are common operations in the technology markets, as well as the use of these types of assets as loan security. These uses give rise to the growing importance of financial valuation of intellectual property, since knowing the economic value of patents is a critical factor in order to define their trading conditions.

<span class="mw-page-title-main">David Teece</span> New Zealand–American business academic

David John Teece is a New Zealand-born US-based organizational economist and the Professor in Global Business and director of the Tusher Center for the Management of Intellectual Capital at the Walter A. Haas School of Business at the University of California, Berkeley.

Knowledge spillover is an exchange of ideas among individuals. Knowledge spillover is usually replaced by terminations of technology spillover, R&D spillover and/or spillover (economics) when the concept is specific to technology management and innovation economics. In knowledge management economics, knowledge spillovers are non-rival knowledge market costs incurred by a party not agreeing to assume the costs that has a spillover effect of stimulating technological improvements in a neighbor through one's own innovation. Such innovations often come from specialization within an industry.

Keith Daniel Bergelt is an American corporate executive and former U.S. diplomat. He is CEO of Open Invention Network where he is responsible for coordinating the establishment and maintenance of a patent ‘‘no-fly” zone around Linux. As such, he is responsible for safeguarding an open and competitive landscape in key technology markets such as back-office transaction processing, mission critical IT applications, mobile communications/smartphones, and desktop computing.

Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992), is a 1992 Supreme Court decision in which the Court held that even though an equipment manufacturer lacked significant market power in the primary market for its equipment—copier-duplicators and other imaging equipment—nonetheless, it could have sufficient market power in the secondary aftermarket for repair parts to be liable under the antitrust laws for its exclusionary conduct in the aftermarket. The reason was that it was possible that, once customers were committed to the particular brand by having purchased a unit, they were "locked in" and no longer had any realistic alternative to turn to for repair parts.

Suzanne Scotchmer was an American professor of law, economics and public policy at the University of California, Berkeley and also a noted author on many economic subjects. She earned her B.A. from University of Washington magna cum laude in 1970, her M.A. in statistics from UC Berkeley in 1979, and her PhD in economics from UC Berkeley in 1980.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

<span class="mw-page-title-main">Fiona Murray</span> Technology innovator researcher

Dame Fiona Elizabeth Murray is the Associate Dean for Innovation at the MIT Sloan School of Management. She is a member of the Prime Minister of the United Kingdom's Council for Science and Technology and Vice-Chair of the Board of Directors of the NATO Innovation Fund.

References

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.