This Article contains a critical discussion of recent studies by Christopher Buccafusco and Christopher Sprigman concerning the role of the endowment effect in intellectual property transactions. According to the thesis presented in these studies, the existence of an endowment effect in the markets for IP goods causes inefficiencies. In order to counteract such inefficiencies, the authors argue, IP rights must be weakened in various ways, including shifting toward liability rules, adding formalities in copyright law, and expanding the fair use doctrine. The thesis as presented is groundbreaking and would have broad implications. This Article, however, points out several shortcomings of the thesis and its ensuing conclusions. To begin with, the experiments upon which the thesis is based are not representative of real IP markets. To the extent that the endowment effect as illustrated does characterize actual IP transactions, debiasing through law is not an appropriate response to this phenomenon. As demonstrated in this Article, heightened valuations of IP goods are often driven by emotional attachment, making such valuations fully consistent with the rational choice model. Furthermore, this Article argues that over-optimism, another factor that inflates the valuation of IP goods, is a phenomenon that society should commend in the context of creative activity rather than condemn. This Article posits that the authors' proposed changes to the current structure of IP law are not only unnecessary in order to ensure efficiency in the markets for IP goods, but might, in fact, circumvent the ability of our IP system to achieve its prescribed goals.
The Endowment Effect in IP Transactions: The Case against Debiasing,
Mich. Telecomm. & Tech. L. Rev.
Available at: http://repository.law.umich.edu/mttlr/vol18/iss1/3