Private property vs. getting things done

Opportunities forgone aren’t always easy to see. The effects of overuse are generally unmistakable — you can’t miss the empty nets of fishing boats working overfished oceans, or the scrub that covers an overgrazed field. But the effects of underuse created by too much ownership are often invisible. They’re mainly things that don’t happen: inventions that don’t get made, useful drugs that never get to market.

In theory, one should be able to break a gridlock by striking a deal that would leave all sides better off. Sometimes that happens. Just the other week, for instance, Nokia and Qualcomm settled a three-year-long patent battle, which could accelerate the spread of third-generation cell-phone technology here and in Europe. In a less contentious fashion, products like the DVD player quickly became mainstream and affordable because many companies worked together to form patent pools.

Even the fact that there’s music on the radio is the result of songwriters’ collectively allowing two main groups, ASCAP and BMI, to handle the licensing of their songs to radio stations.

One reason deals founder is that there are simply too many interested parties. If, in order to create a new drug, you have to strike bargains with thirty or forty other companies, it’s easy to decide that the price is too high. But often things go awry because owners won’t make a deal at a reasonable price, as with America’s nascent aircraft industry.

Or take a problem that bedevils the oil-and-gas industry. When different companies own adjacent patches of an oil field, each will be tempted not only to drill its own patch but also to try to suck out the resources of its neighbor’s patch. For geological reasons, overdrilling actually reduces the total amount of oil you can get out of the field—all sides end up worse off. An obvious solution is to have one company do the drilling and share the revenues with the other players. But, as the economics professor Gary Libecap has shown in a historical analysis, such agreements are often reached only belatedly, if ever.

Recent experimental work by the psychologist Sven Vanneste and the legal scholar Ben Depoorter helps explain why. When something you own is necessary to the success of a venture, even if its contribution is small, you’ll tend to ask for an amount close to the full value of the venture. And since everyone in your position also thinks he deserves a huge sum, the venture quickly becomes unviable. So the next time we start handing out new ownership rights — whether via patents or copyright or privatization schemes — we’d better try to weigh all the good things that won’t happen as a result. Otherwise, we won’t know what we’ve been missing.

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