valuing intellectual property: an experiment - Cornell Law Review

R. IV. IMPLICATIONS FOR INTELLECTUAL PROPERTY LAW AND. POLICY . ...... accurate predictive analysis of the Box Office value of film scripts.” Epagogix,.
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VALUING INTELLECTUAL PROPERTY: AN EXPERIMENT Christopher Buccafusco & Christopher Sprigman† I. THE BEHAVIORAL ECONOMICS OF INTELLECTUAL PROPERTY LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Classical Economics and Intellectual Property . . . . . . . B. Behavioral Challenges to the Rational Choice Model: The Endowment Effect . . . . . . . . . . . . . . . . . . . . . 1. The Strength of the Endowment Effect . . . . . . . . . . . . . . . 2. Psychological Mechanisms Behind the Endowment Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. The Endowment Effect in Legal Scholarship . . . . . . . . D. Our Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. MODELING AN IP MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. The Contest: “Eyes Closed” . . . . . . . . . . . . . . . . . . . . . . . . . 1. Contest “Eyes Closed” Method . . . . . . . . . . . . . . . . . . . . . . 2. Contest “Eyes Closed” Results . . . . . . . . . . . . . . . . . . . . . . B. The Contest: “Eyes Open” . . . . . . . . . . . . . . . . . . . . . . . . . . C. The Lottery: “Blind” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Lottery Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Lottery Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. UNDERSTANDING CREATORS’ BEHAVIOR: INTERPRETING OUR RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. IMPLICATIONS FOR INTELLECTUAL PROPERTY LAW AND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Do the Endowment Effects We Observe Lead to Inefficiency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. The Debate Between Property Rules and Liability Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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† Assistant Professor, Chicago-Kent College of Law, and Professor, University of Virginia School of Law, respectively. This research has been supported by grants from the John Olin Foundation and the University of Virginia Law School Foundation. The authors wish to thank Meg Scalia, J. McClendon, Kate Ranganath, Sean FitzGerald, Joseph Carlasare, Arthur Sadiq, and Tim Cook for their superb research assistance. The authors are grateful for helpful comments received from John Cacioppo, Dennis Crouch, Deven Desai, Dan Gilbert, Chris Guthrie, Paul Heald, Robert Heverly, Ariel Katz, Mark Lemley, Jonathan Masur, Greg Mitchell, Dotan Oliar, Jeff Rachlinski, Jennifer Rothman, Bobbie Spellman, Simon Stern, Stephanie Stern, Katherine Strandburg, and participants in workshops at the University of Toronto Faculty of Law, the University of Pennsylvania Law School, the Sloan School of Management at the Massachusetts Institute of Technology, the University of Illinois College of Law, the Loyola Law School, Los Angeles, and the 2009 Intellectual Property Scholars’ Conference.

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C. The Effects of Royalties and Formalities on IP Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Behavioral Biases and the Market Failure Theory of Fair Use . . . . . . . . . . . . . . . . . . . . . . .