Paper Idea: An Efficiency Justification For Abolition of Music Copyright

This paper topic hurts my brain -- if you have any spare cycles, please jump in and help.

Should copyrights be narrowed? The debate often comes down to efficiency vs. fairness. Efficiency Point: legal protection for DRM permits fine-grained markets for various copy rights, leading to the most efficient generation of social welfare and incentive for creation. Fairness Counterpoint: absolute legal protection for rights-holding distribution oligopolies generates wealth only for those oligopolies, harming both artists and consumers. (For Westlaw subscribers, this law review article is an example of this view of the debate, taking the efficiency side.)

I want to argue something different: in the internet age, "securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries" is no longer an efficient way to "promote the Progress of Science and useful Arts," and Congress should abstain from its power under the Copyright Clause.

The argument goes like this:

• "Property" is a legal creation, meaning "a government-granted exclusive, transferrable right to do something." For example, the right to drive a particular car, cross a particular bridge, sit in a particular movie theater or copy a particular mp3.
  
• Government creates property in order to generate wealth through efficient transfers. Creating a property right in cars generates a market for cars, which in turn ensures that producers will manufacture cars, and the ultimate owner of each car is the one who values it the most.
  
• However, exclusive rights lead to inefficiency in cases where the market leaves resources unused. For example, most movie theaters have empty seats in most screenings. If there are consumers who would pay something for those seats, but less than the $8 entry fee, then net wealth is lost each time they are excluded.
  
• Therefore, markets created by a government-granted property right should be judged along several efficiency axes: the wealth they generate through efficient transfers, and the wealth they destroy through over-pricing and under-using resources ("exclusion cost").
  
• Exclusion cost can be defined as the amount additional consumers would have paid for the product, minus the cost of serving each consumer. For example, if the additional seats could have been filled at $4 a ticket, costing the theater $1 per ticket for cleanup costs, the exclusion cost is $3 per seat. That $3 is forever lost to society.
  
• Exclusion cost will vary wildly from market to market. Property rights in oil have no exclusion cost; every drop gets sold. Property rights in theater seats have some exclusion cost; a few seats in each screening aren't used. What about property rights in song files?
  
• The internet changed the answer to this question dramatically. Post-Napster, an unlimited number of copies can be created at a marginal cost of $0. That means the exclusion cost can be defined as the total amount consumers would have been willing to pay for a copy of each song available on Napster, where those consumers are unwilling to pay the current market price. Based on the amount spent on music and the amount of music downloaded illegally, that net welfare loss is likely to be quite high.
  
• At the same time, with marginal cost declining to $0, the efficient-transfer justification for the property system loses force. Nothing is lost by providing a good to Consumer A, who values it at $.01, just because Consumer B values it at $10. Both of them can have the song.
  
• The efficiency analysis of the copyright system now seems to weigh against property rights, at least in the context of music. Lacking the efficient-allocation justification, the additional music incentivized by copyright is unlikely to balance out the exclusion cost of copyright.
  

So, that's where I've gotten so far. I have a ton of questions:

• I'm sure I didn't invent this idea, but I don't even know how to find what's already out there. What's the actual economics term for what I'm calling exclusion cost?
  
• If copyright was abolished for music, what system would replace it? Are there other, more efficient means to incentivize creation?
  
• Are there analogous markets and incentives out there, like lighthouses and roads and GPS satellites?
  
  
  
  • In the ones I can think of, it's not so much a problem when the government picks winners and losers.
    
  • Also, in the ones I'm thinking of, it's not 1) possible to add consumers at no additional cost (like GPS) AND 2) possible to try to exclude consumers unless they pay individual fees (like highways). Are there markets that have both features, like the music market does?
    
  
  

I know this is hard stuff, but like I said, it's hurting my brain, and I'll be super grateful for anything people can add.