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Originally written on May 30, 2013. Last version revised on June 29, 2014

Explaining real-world economics in High School: The social opportunity
cost in intellectual property rights
by Javier Casaseca Calvo

INTRODUCTION

Prior to the beginning of the recent financial crisis, there was a worldwide concern about the
populations lack of rudimentary economic and financial literacy. In an effort to palliate this
situation, the US government introduced in 2008 a series of measures aimed to increasing
awareness of financial literacy for all Americans. One of the first measures was to create The
President's Advisory Council on Financial Literacy, which recommended in its first Annual
Report to the President (2008, pp. 14-16) the need to start teaching personal financial literacy
from elementary school to college level. Financial literacy not only implies to know the basics of
banking operations, prices or job market but also, and more importantly, it requires to acquire
the skills of long-term planning.
As an educator and economist, I believe the benefits of financial literacy can really pay off
throughout ones life, but sometimes it is not easy to engage students in concepts that they
perceive far from their interests. When educational concepts are vague, the results of
educational practices are often superficial (Elder & Paul, 2007, p. 6). Therefore, educators
whose mission is to teach economic and financial literacy need to find ways to overcome this
initial resistance by presenting real-life situations close to the students interests, inquire about
their opinions, and discuss their thoughts afterwards under an economic and financial point of
view. Most of our students are avid consumers and creators of information as well as skilled
technology users, which guarantees them exposure to intellectual property issues as they
share, storage, and transmit data over the Internet, even when they are not aware of it.
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The purpose of this presentation is to show how the concept of intellectual property rights
can be introduced, developed, and related to the economic concept of social opportunity cost in
a meaningful way to students pursuing secondary education. To that end, I will start with a brief
introduction to the concept of intellectual property, refer to the rationale behind its existence,
and provide with the current solutions proposed by scholars and experts in intellectual property
laws. Further to this introduction, I will offer different approaches to the selected topic that can
be extrapolated to many others like public and common goods, types of markets (e.g.,
monopolies), marketing strategies, short-term versus long-term decision making, ecology of
markets, etc., in an effort to demonstrate that intellectual property rights have a real presence in
our lives.

1. Intellectual property rights I: concept, rationale, and introducing the topic to the
classroom

Intellectual property rights are often perceived as a complicated topic among adults, so there
should not be a surprise to find out that our students are initially less than interested about
them. However, the fact that they might not consider it important does not mean they are not
deeply involved with intellectual property rights as consumers of culture. Therefore, given that
one of our missions as 21
st
century educators is to prepare our students to become responsible
citizens and provide them with the resources to understand better their environment, I consider
that intellectual property rights is an excellent topic to educate our students in their rights and
responsibilities as both producers and consumers.
1.1. Concept

According to the World Intellectual Property Organization (WIPO), intellectual property rights
can be broadly defined as legal rights which result from intellectual activity in the industrial,
scientific, literary and artistic fields (WIPO Intellectual Property Handbook, 2004, p.3). Laws or
regulations about intellectual property rights differ among countries but they share common
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ground in establishing the guidelines for use and protection of works of the human mind. In any
case, intellectual property rights present a challenge for every society willing to regulate them
since it requires reconciling two essential human rights defined in The Universal Declaration of
Human Rights, art. 27:
(1) Everyone has the right freely to participate in the cultural life of the community, to
enjoy the arts and to share in scientific advancement and its benefits.
(2) Everyone has the right to the protection of the moral and material interests resulting
from any scientific, literary or artistic production of which he is the author.
1.2 Rationale

The controversy of intellectual property rights has its origin in regulations of exclusive
property rights but the key to its expansion resides in the recent evolution of technology that has
affected the way people access to the intellectual works of humankind. Firstly, the laws and
regulations about intellectual property pursue a double mission. On the one hand, they confer
moral and economic rights to creators of intellectual production, but on the other hand, the
protection is primarily established to contribute to human progress (e.g. see UNHR, 1948, Art.
27 or US Constitution, Art. I, sec. 8, cl. 8.) Therefore, when different interests collide, right
owners versus consumers of intellectual property, the invisible hand (Smith, 1904) will not
always find a way to end up promoting public interest while pursuing individual gains. Secondly,
the recent technological advances (Internet, digitalization of content, social networks, mobile
communications, etc.) encourage us to share and create. While adults usually have in mind
intellectual property rights, teenagers tend to use and share content in addition to create their
own based on the former. And here is where they can easily trespass the boundaries
established by the intellectual property regulations. Hence, teachers of economics and finance
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have an excellent opportunity to explore the mentioned topic, and promote both self-education
and the exercise of fair use rights when it comes to intellectual property creations.
1.3 An array of possible solutions

Many scholars have studied the fact that intellectual property rights offer a challenge society
and there is no single solution. Each of them has offered possible solutions to reduce the social
opportunity cost imposed by intellectual property rights but it is important to remark each
alternative has its upsides and downsides. A way to encourage our students into participation
along this incursion to intellectual property rights is that nobody has find out a single perfect
solution yet, and society is trusting on them to provide with new ways to proceed.
Among the solutions proposed by experts we can find the following:
a) A reform of the copyright law (Lessig, 2008; Boyle, 2008; Levine, 2011; Aufderheide &
Jaszi, 2011; and Benkler, 2006)
b) Going back to the previous opt-in/renewable system (Lessig, 2008, p. 262)
c) Protecting the public domain of culture and information as if were a natural environment
(Boyle, 2008, p. 230)
d) Involve the providers of Internet connections in establishing a blanket license to
compensate the profit losses from free riders (Levine, 2011, p. 234)
e) Learn and divulge our rights to exercise fair use (Aufderheide & Jaszi, 2011, p. 154)
f) Explore the networked information economy based on shared and non-market relations
as a viable system of production that can coexist with the market-based economy
(Benkler, 2006, p. 463)
Again, these solutions should be considered alternatives or possibilities to reduce the
unnecessary burden established by the intellectual property rights. In the course of our
exploration of the topic, our students might end up with different ideas about how to solve the
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problem. This would be an excellent opportunity to practice how to reach a consensus in an
exercise that can mimic a political decision, which would help to promote argumentative speech
and respect to others opinions.
1.4 Introducing the topic in the classroom

I have already mentioned that our students are likely already involved with intellectual
property rights on a daily basis, therefore it should not be very difficult to introduce the topic to
the classroom and relate it to their own experience in order to bring it to life. In this context it is
important to stress that even when teachers present the topic following a sequenced lesson
plan to increase the efficiency of the education experience, from an instructional point of view, it
is also equally important to take advantage of the particular flow originated from their students
experiences, opinions and interactions, and support each intervention with the appropriate
economic argumentation. As educators, we should not forget that our students are already
active consumers and creators of intellectual content, and we can take advantage of their
background to make the topic real and close to their personal lives. Generally speaking, the
teachers ability to balance both elements, lesson plan and class flow, will determine greatly the
success of the educational goals. In the following sections, I will offer an example of a possible
approach to introduce intellectual property rights and a few ramifications to other economic and
financial concepts that can be also covered.
1.3.1 The right to live from creative work

We could start by dividing our students in small groups for a brainstorm activity to find
examples of people who have profit from selling their creative works, like writing, drawing,
painting, designing, composing music, recording videos or films, etc. It is likely that when the
results are shared, they will come up with a list of a few artists and creators who have been or
still are successful. Once we make sure there are enough examples from a variety of
representative fields, the next inquiry should be about the fairness to live from creativity and
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talent. Given the pool of previous responses, it should be quite evident that people have the
right to make a living from their abilities, which is a perfect opportunity to show how the law does
in fact protect authors of original work with exclusive rights (US Constitution, Art. I, sec. 8, cl. 8,
US Copyright Law.) There is a whole industry that allows information, culture and art to grow
and creates wealth at the same time. Many experts in intellectual property like Lawrence Lessig
(2008), James Boyle (2008), Robert Levine (2011), Patricia Aufderheide and Peter Jaszi (2011),
and Yochai Benkler (2006) support the existence of these exclusive rights, and it is quite
possible that most of our students will agree with the idea.
If we are lucky, there could be at least one student (to whom we should be grateful to) who
will raise her concerns about the excessive entitlement exclusive rights can confer to the
copyright holder and class discussion will likely speed up. If we are not that lucky, we should
introduce the other side of the coin: the terms in which exclusive rights are defined, in addition
to the mere attribution of an exclusive right, make a social opportunity cost appear.
1.3.2 Intellectual creations: closer to public than physical goods

It would be interesting to know from our students what they understand for exclusive rights
in intellectual property because, as stated by Benkler (2006, pp. 36-37) and Boyle (2008, p. 7),
intellectual property is often conceived as a common physical good when, in fact, it shares the
features of non-rival and/or non-excludable goods typical characteristics of public goods.
Our class might find difficulties in understanding the different nature of intellectual property. If
it is the case, I suggest using a close technological example of a physical product protected by a
patent or trademark (e.g. a certain smartphone). When exclusive rights protect a physical
product, the manufacturer is given control over that product and, consequently, restricts others
access to it (e.g. jailbreaking a smartphone voids the manufacturers warranty). However, the
boundaries in the physical world are clearer than those in the world of the intangible, and
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intellectual property lies into the latter category. Only when the idea of exclusive rights is fixed in
our students, we could move forward and inquire about the differences between intellectual
property (e.g. a song) and physical property. If we monitor their opinions, it will not be surprising
to find that they will point out rivalry
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, and/or excludability
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in consumption, as the roots of
difference between them. Whether they discover these features by themselves or not, this could
be a good opportunity to introduce these two concepts, typical of public goods.
1.3.3 Free riders

Public supply of goods and services may have been covered or not in an earlier lesson but,
in either case, it will take only a few minutes to ask for our students opinion about why this kind
of goods are provided by the public sector and not by markets. Again, the answers should be
pointing that the special properties of public goods and services require them to be regulated
because a market will not produce them (Benkler, 2006, p.36, Mankiw 2012, p. 220). The
reason? If people can consume public goods and services simultaneously and/or without paying
for them, there always will be people who consume or make use of a public good or service and
not paying for it (Screpanti & Zamagni, 2005). Here we have a perfect opportunity to introduce
the character of the free rider and to anticipate our students that it is not easy to deal with him.
Traditionally, only governments at their different levels (federal/national, state/regional, and
local) have been able to provide these public goods and services assuming the costs of the free
rider as inevitable, given the nature of these items. However, since the Internet appeared in
scene, private corporations and media industries have been also deeply affected by free riders
or piracy (Levine, 2011, p. 6). So what will our students do to solve the problem of free riders?
An individual essay posted in the students blog could be used for this particular approach. In
any case, one of the likely conclusions would be that doing nothing will encourage others to free
ride and cancelling the supply will be a prejudice for the majority who are not free riders. Ideally,

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Consumption by one person does not make it any less available for consumption by another (Benkler, 2006, p. 36)
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Access to a good can be prevented with a price or other barriers (Mankiw, 2012, p. 218)
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they will end up with enforcement and education as the best options, which are actually the two
most frequent measures used to discourage free riding. Trying to find a way to make everyone
pay could be another answer, but it is not free from controversy: it will put a price to access to
culture and it will also change the non-excludable nature of the item.
Accordingly, we already know that public sectors provide the population with public goods
and services, like infrastructures, education, justice or national defense, even if the free rider
appears. But how does the law protect an individual creator of culture or information, which are
goods similar to public ones in nature, against free riders? This is precisely what should turn the
debate back to exclusive rights and move forward once we had clarified the peculiarities of
intellectual property.



1.3.4 A law that allows monopolies

Now that we are back on track, it is time to analyze the source of empowerment: the
copyright law. In the United States, the Constitution and the Copyright law, as it happens in
other countries (Aufderheide & Jaszi, 2011, p. 149), exclusive rights have been established to
grant the holders of those rights a near-like monopoly over their creations. Once again, even
when our students might or might not have a general idea about what a monopoly is, it will not
be complicated to set the grounds that monopolies concede a great deal of power, especially
when there are no substitutes or alternatives of consumption. Such concentration of power
should be carefully supervised even when those monopolies are public-owned (Boyle, 2008, p.
23). We can always ask our students about examples of companies or government agencies
that hold a monopoly and show them news about how closely they are watched to avoid abuses
of power (e.g. Microsoft or Google).
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In fact, this would be an ideal moment to let our students search for references in the US
Constitution about exclusive rights. They will be able to find that the US Congress is entitled To
promote the Progress of Science and useful Arts, by securing for limited Times to Authors and
Inventors the exclusive Right to their respective Writings and Discoveries. (US Constitution, Art.
I, Sec. 8, Clause 8). In other words, the existence of exclusive rights grants a near-monopoly to
their holders while creates a social opportunity cost to global information and culture but is
justified to promote further creations throughout the monetary rewards to the creators. The
problem appears when this protection loses its primary purpose.

2. Intellectual property rights II: source of an increasing social opportunity cost

We are finally in a position to initiate a deeper discussion about the social opportunity cost
that appears when laws grant exclusive rights in intellectual property. At this point, our students
must have already understood that intellectual property rights create a certain social opportunity
cost due to the special nature of intellectual creations although such cost is necessary to
encourage people to create and be able to make a living from it. In words of Benkler, societies
are willing to trade static inefficiency for dynamic efficiency (2006, p. 37). Unfortunately, a
series of circumstances have provoked that the social opportunity cost has increased greatly
over the last two decades. During the study of the following events, our mission as teachers of
economics and finance should be focused on promoting reflective thinking, the importance of
long-term consequences to short-term decisions, and the need to minimize the social
opportunity cost.
2.1 The Internet revolution

The United States National Academy of Engineering considers the Internet among the
greatest technological changes in the 20
th
century (Constable & Sommerville, 2003). Our high
school students have grown in the Internet era, hence they can provide with abundant examples
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where they access to a variety of information and culture on a daily basis. Having easy access
to intellectual creations from others is extremely empowering because it has changed de facto
the way culture is evolving. Today, not only we are consumers of content produced by others
but also we have become creators as well (Lessig, 2008, p. 25). Nevertheless, the Internet has
also brought other issues that should have our attention.
First, piracy can be easily pointed out by our students as something the Internet has brought,
and there is a far from negligible possibility that many of them have experienced it somehow.
Moreover, the youngest generations have already been criminalized by their lack of boundaries
in the use of content they find on the Internet, which is a concern for authors like Lawrence
Lessig (2008, p. 284). As educators, this might be one of the most important discussions we can
have with our students. The problem of piracy can be easily identified with the character of the
free rider we have already discussed; thus, an opportunity like the one we have at hand should
not be wasted to educate our students in the consequences piracy bring to every author, them
included.
Quite probably, the discussion will bring back again the topic of unfairness caused by the
existing barriers to access freely to culture and information. Once again, the flow of their
arguments should be used in our favor to present the next two issues brought by the Internet.
The second topic is the way intellectual property rights have been established which confers to
their holders such control that not only affects the content per se but also brings along control
over the medium of transmission (Boyle, 2008, p. 205). This is another exceptional opportunity
to debate if such control steps or not into fundamental liberties. We should bear in mind that the
topic is widely open to controversy and not even scholars have ended up with a solution that
brings balance to consumers and copyright holders rights.
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Lastly, it is a fact that the Internet not only has revolutionized the way we consume and share
information, create content, and communicate, but also has brought the birth of new
corporations, some of them large enough to act as monopolies. Examples of this business can
be found in different industries like the physical networks, with Cisco Systems (Benkler, 2006, p.
148); social networks and engine searchers, with Facebook or Google (Levine, 2011, pp. 104,
244); and new business that benefit directly from technology and social interaction like Amazon
or eBay (Benkler, 2006, pp. 87, 125). This could be a good time to inquire and refresh our
students on the downsides of having private monopolies. In my experience, simulations and
role-play games are among the most effective activities to acquire and retain new concepts.
Students can experiment for themselves the power of a monopoly with any strategy game like
chess, poker, Monopoly, Risk, or the Settlers of Catan, where the nature of the competition
favors the smartest, luckiest and more resourceful player (the monopolist) to defeat the other
players. For advanced lessons or students, I would recommend more complex simulation
games like JA Titan or Economics-Games.com. After playing any of these games, students will
be able to understand that markets supplied by private monopolies can impose their conditions
(price, quality, terms of service, etc.) to maximize their profits. This is good business for the
monopolist but not so good for the society, which is basically the reason why there are legal
measures (e.g. US antitrust laws) to prevent companies from taking monopolistic positions in
markets. Here we have an additional opportunity for an individual or group assignment:
research a company that has been accused of monopolistic power, find out what measures
where taken by regulatory authorities, share the findings with the class, and create a class
poster with the different solutions taken to correct the situation.
2.2. Length of copyright

Another source of opportunity cost can be found in the length of copyright which, in the
United States, consists on the protection of any creative work produced after 1923, for a
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maximum term of life of the author plus seventy years, or ninety-five years for corporate work or
work created before 1978 (Lessig, 2008, p. 97). In a time where access to information and
culture is an essential right, our students will probably consider such length excessive. Showing
them that many scholars share their opinion, even those who favor the commercial interests
over the cultural ones (Levine, p. 247), can help to build their argumentative speech confidence.
2.3. Double inefficiency

Benkler (2006) provides with an excellent economic argumentation about the extremely high
social opportunity cost brought by the intellectual property rights, which came from a double
source of inefficiency. The first source should be easy to understand for our students because it
is based on the law of supply, a concept they should be familiar with in every introduction to
economics class. Information and culture are an input and an output (Benkler, 2006, p. 37);
therefore when information, as an input, is more expensive to obtain due to copyright costs, less
new information will be produced as an output. In sum, property rights act like a tax that
discourages production. The second source of inefficiency can be found when the purpose of
copyright to reward the holders is not fulfilled (Benkler, 2006, p. 37). In other words, there is no
justification to burden collective creativity when the holder of exclusive rights is not benefiting
from those rights anymore (Lessig, 2008, p. 263).
CONCLUSION

The goal I have pursued in this essay has been to create different opportunities as a way to
approach several of the economic ramifications a topic like intellectual property rights can offer.
Each opportunity to exchange ideas could be also used to work further on any of them by
implementing other activities like writing a blog or an individual essay, giving a group
presentation, conducting a guided research, setting up a role-play or simulation game, etc.
Economics and finance teachers have (a) the chance to explore what their students think, (b)
use elemental economic and financial analysis to shed light about the insights from both sides in
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every decision-making actions and their consequences in the long term (in this case, the social
opportunity cost), and (c) stress the importance of financial literacy to help in the education goal
of promoting critical, long-term thinking, as well as digital citizenship
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.
As 21
st
century educators, we need to take advantage of our students thirst for knowledge
about things they are interested in and this topic of intellectual property rights has a critical
presence in their present and future lives. An adequate presentation of the topic fueled by the
students interactions and conducted, in whole or in part, by a savvy teacher can result in a
notable educational experience.




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Critical thinking and digital citizenship are considered two of the five International Standard Society for Technology in Education Standards for
Students (ISTE StandardsS).
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