Department of Agricultural and Resource EconomicsEEP 101/ECON 125Chapter 19: BIODIVERSITY, BIOTECHNOLOGY, AND INTELLECTUAL PROPERTY RIGHTSTopicsPublic GoodsKnowledge as a Public GoodInnovation ProcessElements of the Strategy to Provide Orphan Drugs and Address Neglected DiseasesPublic GoodsPublic goods are defined as goods with two properties: nonrivalry, i.e., it can be utilized by many people simultaneously, and nonexcludability, i.e., there are no barriers to utilizing these public goods. Like many other goods, production of public gooGlobal Public GoodsKnowledge as a Public GoodInnovation ProcessTechnology Transfer from the Public to the Private SectorTable 10. Common Patterns of the Division of Labor of the Innovation Process*Neglected Crops and Orphan DrugsElements of the Strategy to Provide Orphan DrugsPublic Institutions of Intellectual Property Rights(2) Establish a new organization, namely, clearinghouses for intellectual property. This organization provides both information and education about the use of property rights and, more importantly, about the availability of property rights. Namely, t(3) Use this clearinghouse to help researchers and institutions in developing countries patent, and more importantly, negotiate and utilize their own intellectual property. Before individual universities in the United States had their own offices of tDepartment of Agricultural and Resource Economics EEP 101/ECON 125 University of California at Berkeley David Zilberman Spring , 2002 Chapter 19: BIODIVERSITY, BIOTECHNOLOGY, AND INTELLECTUAL PROPERTY RIGHTS Topics Public Goods Global Public Goods Knowledge as a Public Good Innovation Process Alternative Forms of Intellectual Property Rights Technology Transfer from the Public to the Private Sector Neglected Crops and Orphan Drugs Elements of the Strategy to Provide Orphan Drugs and Address Neglected Diseases Public Institutions of Intellectual Property Rights in the Developing World Public Goods Public goods are defined as goods with two properties: nonrivalry, i.e., it can be utilized by many people simultaneously, and nonexcludability, i.e., there are no barriers to utilizing these public goods. Like many other goods, production of public goods is costly. Markets left on their own tend to underinvest in public goods because each individual has a tendency to free ride and expect others to pay for the public good so he can benefit from it for free. Let D1 be demand of one person, D1+2 demand of two people, etc.PQ*QMCD1+2+3+4D1+2+3D1+2D1 The optimal quantity is Q*. At this level, marginal cost is equal to the sum of the marginal benefits of the consumers. As we mentioned earlier, this outcome will not be attained by the market and requires government intervention. The government uses taxation to finance public goods, but society develops other mechanisms to provide for public goods. At the national level, the national defense is used as an example of a public good. Within a city, environmental quality (clean air) is a public good. However, even with this example, we see some of the problematic features of this notion, since some neighborhoods have cleaner air than others. Therefore, when there is differentiated access to a good that has nonrivalry of consumption, then there are differences in private benefits, and people will pay for the access. When the access to a good with nonrivalry of consumption is blocked, the private sector will have the incentive to provide this access. One example is a football stadium. When the owner of a football stadium prevents access through an entry fee, he/she has the incentive to provide these goods. Actually, in a situation where you have nonrivalry of consumption but excludability, you may have a situation where the party controlling the access may capture the entire social surplus. When there is heterogeneity in benefits derived from goods with nonrivalry of consumption, the resource owner who charges a entry fee may underprovide the good, unless he charges a differentiated price that will reflect an individual’s willingness to pay for access to the good. Without the ability to charge differentiated prices, the owner may build a smaller facility and charge a higher price to tap the richer members of the community. In 2this case, there will be little access to goods with nonrivalry of consumption to the poor. In many cases (again, in the case of a sports stadium) there are differentiated prices to allow access to different members of society as well as to increase the profit of the owner of the property. The challenge, of course, is to be able to distinguish between different members’ ability to pay of or to establish differentiated pricing. When there is nonrivalry of consumption but ability to control access and heterogeneity in most cases, private sector control of a good may be suboptimal. In many cases the government either controls or interferes in management and provision of such goods. There are many examples. One is access to education. Some people pay for their education while others receive scholarships. Development of environmental amenities in many cases follows a similar pattern. A developer obtains the right to develop a property and part of it will be developed exclusively to capture benefits from rich people who are able to pay. However, the other part of the property can be provided cheaply for members of the public. In this case, part of the area that is developed (be it parks, beaches, etc.) may be allocated by queuing with a lower access fee. In some cases there is to some extent nonrivalry of consumption. When the size of a user of a product affects the benefits because of congestion, there is an optimal number of participants. In this case, we speak about a club where the optimal size is determined at the point where the gain accrued to an incremental individual is equal to the loss of congestion to all other individuals. The considerations associated with management of public goods, club goods, and goods with nonrivalry of consumption but ability to block access are important as one considers development of natural reserves in developing countries and principles associated with buildup of eco-tourism and preservation of biodiversity. It is clear that we rarely have situations with pure public goods, and even then we may have heterogeneity with respect to both benefits and cost of maintaining such