Friday, November 5, 2010

Who Owns Your Building (Code)?

In a brief talk, Carl Malamud argues that building codes and other legal materials should remain in the public domain rather than being put under the control of private owners:

 I have some sympathy with Malamud's position, but I think his argument is way overbroad.  As I've argued elsewhere (see here), there are strong reasons to think that state and local governments fail to innovate at an optimal level.  Currently, a jurisdiction that produces a failed innovation is forced to shoulder all of the costs of its experiment.  At the same time, a jurisdiction that crafts successful policies cannot stop its neighbors from copying its ideas and filching the benefits. Faced with this scenario, the rational government will prefer to copy the successful experiments of others rather than attempt to forge new solutions to tough problems.

Property rights could help. Granting state and local governments some kind of property right in their legal innovations would help them to better internalize the benefits of their risktaking, and would ultimately lead to more and better innovations.

Steve Clowney

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The problem with this conclusion is that it assumes normal business risk analysis. Government/political risk analysis is quite different. It's one thing to create a basic law and economics model, but it's another thing to try and apply it to broadly in realms where the psychology of the actors varies greatly.

It comes down to more basic considerations than a flawed law and economics approach. 'Jurisdictions' are not single entities — they are composed of the citizens in that jurisdiction and their political body. Taking the 'property' approach you appear to favor, who then owns the rights to the solutions created?

If my city, to which I pay taxes, and for who's mayor I voted, develops a particularly successful building code, do I have a right to benefit from that code? Or does only the mayor have that right? The city council? Or the engineer who created it?

Who bears the right to restrict this benefit? The mayor? City council? The engineer? Me?

What happens if someone moves? Does this right travel with them? Does it stay with the city?

This is less of a problem with cities because they operate as municipal corporations, but what about counties that are state subdivisions? If the county is merely a subdivision of the state, then does that state acquire a corresponding right to use the new building codes and restrict others?

Finally, how exactly does restricting others from using your ideas help you internalize the benefits of risk-taking? What externalities are you seeking to externalize?

Assuming the risk is that the building codes will not be effective or, worse, be harmful, then how can this risk be internalized? It seems a better method for internalizing this risk is to hold the city liable for the failure of the codes so that proper effort goes into creating the code.

But, then again, you state that restricting free use of building codes and other civic code advancements will help internalize the benefits of a government's risk-taking. This seems to suggest that you seek the rewards of the risk-taking being more easily recognized. Are not these rewards, however, the more efficient and effective codes themselves?

Restricting others from using such codes without license does not really internalize the rewards, but rather artificially hedges against risk. This actually functions to externalize the risk associated with creating new codes. It also creates incentives for trying something new that are hedged against potential harms because you can always license new codes to other governments. Therefore, the incentives for ensuring your code activities are beneficial and effective are less than if you made cities more liable for poorly drafted codes.

This doesn't even address the very real question of whether constructive 'property' right restrictions in these ideas could be shown to lead to more innovations. There are numerous studies and articles and more on whether or not copyright and patent laws truly encourage innovation. The fashion industry, for one, is an argument against property rights encouraging innovation. This idea, on it's own, is far from settled.

And let's not forget the benefit of strong property rights is the ability to better manage scarce resources. Ideas are not tangible, rivalrous, scarce things — they are potentially infinite in their uniqueness. These are not scarce resources that seek to be saved from a tragedy of the commons.

As my ConLaw professor used to say (more than occasionally to me), let's not go down that path, that way therein lies madness.

I might be a bit touchy on this — I do work in local government law.

Posted by: John Nelson | Nov 5, 2010 8:17:58 PM

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