Response to WIPO Consultation on Performing Impact Assessments for IP in the Creative Industries

Below is the response that was submitted by the OKF to a WIPO consultation on the Economic, Social and Cultural Impact of Intellectual Property
in the Creative Industries back in September. Despite its extremely broad mandate the main part of the consultation was about a more limited, methodological issue, namely how to do impact assessments for IP rights in the Creative Industries — in plain english: how do you work out whether granting new bits of IP is actually a good idea.

(You might think this is something that WIPO might have needed to think about before but, as Ben Ivans the National Association of Broadcasters lobbyist pointed out, WIPO’s never been that hot on gathering evidence for any of the treaties it considers — Ivans point was why start now.)

Preamble

Due to limitations of time we will not respond in full to every one of the items listed in the consultation document but will instead provide ‘general’ comments. Furthermore we will focus on the methodological issues and will not deal with substantive issues (questions 19 and following) as we feel unable to do them justice in the time available.

Use Economics

An impact assessment must be able to assimilate the various different effects of policy in different areas into a single value. Without this it is impossible to explicitly compare competing policies in a transparent way and thereby decided which which is preferable. For this purpose economics provides utility and its associated aggregate: social welfare, both often presented in money metric terms.

Thus our main recommendation is that impact assessment for policies related to IP should be carried out using the framework centred on ‘social welfare’ which has been developed by economists. The ‘economic’ toolbox is well suited to a holistic analysis which includes on an equal footing all three of the areas, ‘economic’, ‘social’ and ‘cultural’ mentioned in the questionnaire.

Aside: in the questionnaire ‘economic’ seems to equal ‘commercial’, that is relating to the income derived from those activities which involve explicit financial transactions executed by profit-seeking agents. Economists as a rule almost never concern themselves with this alone — even when focused on goods which are traded in markets they would measure utility and not just income. Furthermore economists from the very earliest stages of the profession have concerned themselves the valuation and impact of activities for which there are no associated market transactions — for example the provision of public goods and the effect of externalities such as pollution. Of course, it is true that it may be very difficult — or even impossible — to value some things, for example freedom of speech, within this kind of analysis (though those kind of items are difficult to include within any form of policy evaluation).

Examples of Impact Assessments Using this Approach

Traffic Safety

To give an example of how this works in a very simple way consider the situation from the health and safety area related to the installation of traffic calming measures. Suppose that the installation of a particular scheme will cost 1 million pounds and that it is estimated will save an estimated 2 people’s lives over the life-time of the scheme. Using a willingness-to-pay (WTP) approach (a proxy for utility) we would then estimate a value for benefit of saving a life. For example using Highways economic note No. 1: 2004 published by the Department for Transport we would obtain a figure of approximately 1.3 million pounds as the ‘cost’ of a fatality. Comparing two times 1.3 million (2.6 million) to 1 million it is immediately obvious that the scheme yields a net benefit.

Copyright Term

The second example is of copyright term. The trade-off involved in setting the length of copyright is that involved in copyright more generally: there are benefits in the form of the welfare derived from the new works created as a result of longer term but costs because of restricted access to and reuse of works in general (copying without permission is prohibitied and prices rise as a consequence). The basic jobs of an impact assessment here would be to work out the value of works (or, more specifically, the demand system for the set of works as a whole). Using this it would then be estimate the costs and benefits and finally a comparison to see which of the two was the larger.

Summary

An impact assessment in relation to IP policies should:

Be firmly grounded in economic theory: a sound understanding of the economic theory, particularly in relation to ‘knowledge’ goods is essential do performing a full and proper assessment.
Examine both costs and benefits: costs and benefits should be examined together. For example, with copyright, deadweight losses should be estimated as well as the gains from the production of new works.
Have a common yardstick: Every effort should be made to incorporate the impact in diverse areas using one common yardstick, such as money.
Be transparent as to assumptions: make clear what assumptions are made and their impact on the results wherever possible.
Take account of the wider picture: (general versus partial equilibrium) where possible the assessment should take account of the effects of the policy outside of the immediate groups (industries, individuals) affected. To take the simplest example: a subsidy to industry A will likely increase employment and output in industry A but in doing so may displace employment and output from industry B.
Be evidence based: wherever possible evidence should be provided for any valuations obtained. In particular every effort should be made to obtain ‘hard’ empirical data.
Open to review: every effort should be made to ensure that all material used in the impact assessment, particularly data, is available for peer-review by other scholars and policy-makers.