Incentive Problem

Since it is the arrangement of the symbols that gives utility, it may be very easy and cheap to duplicate the information product. For example, once an inventor has worked out plans for a valuable invention, others can use the plans to produce the machine without sharing the cost of developing the invention. In general, a valuable arrangement of symbols can be imitated. That is, imitators can arrange symbols in the same way in the same or another suitable medium. In general imitation is less costly than original work, and thus the imitators can undersell the originator. In effect, the imitators need not bear any of the fixed cost of the original information product, but only the variable cost of the media. Other examples are those who "pirate" software and recordings by making unauthorized copies. This may make it very difficult for originators of information products to recover the cost of their work, let alone profit by it. If this is so, then there will be little incentive to originate information products, and this would be inefficient. This is the "incentive problem."

Intellectual Property