The privatization of species: An economic history of biotechnology and intellectual property rights in living organisms

This work evaluates the historical necessity and economic efficiency of providing intellectual property (IP) protection for biological innovation. For comparison with IP protection, it examines the economic characteristics of other innovation-promoting institutional arrangements, including the historically relevant alternative to IP protection: public funding and performance of agricultural experimentation and biological research.; Traditionally, economic analysis of innovation has focused on market failures resulting from the inappropriability of R&D and on the tradeoff between incentive and inefficiency under IP protection. Most game-theoretic models of R&D have ignored the cumulative and interactive nature of knowledge, and neglected the social context of innovation. Similarly, the technological determinist theory of institutional evolution has tended to overlook the social context of institutional change. This oversight has tended to obscure the full-range effects of IP protection: Besides influencing R&D investment decisions, intellectual property protection affects the disclosure of innovations, licensing arrangements, market structure, government involvement, and the conduct of research.; A historical examination of the evolution of innovation-promoting institutions in biotechnology shows that the expansion of intellectual property rights in living organisms was necessitated by the increasing R&D capability of the private sector, but was hardly a step toward a more efficient resource allocation. The reduction of R&D cost through new techniques developed by the public sector helped to make it feasible for private firms to engage in biological innovation. Although technological conditions for grafting bio-patents onto the existing patent statute were not yet established, IP protection was promoted as a means of encouraging private investment in biological innovation when other means of appropriation, such as hybridization or vertical integration, were unavailable. In providing IP protection, however, legislators tended to overlook that it would have a significant effect on public research programs, which had a remarkable record of achievement under public funding. It is not at all clear that the new division of labor between the private and public sector under the IP protection would perform better than the traditional system of publicly funded research.; In fact, the cumulative and interactive nature of biological innovation suggests that the tradeoff between ex ante incentive and ex post inefficiency under IP protection may not be optimal. A natural tradeoff may be between the ex ante sharing of risks in the production of new knowledge and the ex post sharing of the knowledge produced. In such fields as agriculture and medicine, a public funding of scientists and a subsequent release of publicly developed innovations for production is likely to lead to a competitive market structure and promote further innovation.