The Social Efficiency of Fairness

34 Pages Posted: 28 Nov 2009 Last revised: 29 Jul 2020

See all articles by Dr. Gavin Clarkson, Esq.

Dr. Gavin Clarkson, Esq.

Native American Capital

Marshall W. Van Alstyne

Boston University – Questrom School of Business; Massachusetts Institute of Technology (MIT) - Sloan School

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2014

Abstract

Property rights provide incentives to create information but also incentives to hoard it before award of protection. Even after award, others who might supplement that idea lack bargaining power until they too secure property rights. An unintended consequence is to slow, not hasten, progress when innovation hinges on combining disparate private ideas.

We show formally that fairness can increase innovation. Welfare improves both in the absolute sense of enabling new projects and in the relative sense of reordering projects that people undertake. Second, in contrast to models of "other regarding'' preferences, we show how self-interest alone is sufficient to justify fairness in a one-time encounter. Third, we show how the hold-up problem is worse for information than for tangible goods. Fourth, we sketch a practical way to promote fairness using liability rules rather than property rights. Liability rules give idea-developers greater flexibility and incentives while protecting idea-originators from exploitation.

Keywords: Intellectual Property, Governance, Information Asymmetry, Innovation, Fairness, Shapley Value, Incentives, Contracts, Mechanism Design, Rawls, Veil of Ignorance

JEL Classification: A13, D23, D45, D8, K11, K12, O31, O34, P16

Suggested Citation

Clarkson, Gavin and Van Alstyne, Marshall W., The Social Efficiency of Fairness (October 25, 2014). Boston U. School of Management Research Paper No. 2009-11, MIT Sloan Research Paper No. 4765-09, Gruter Institute Squaw Valley Conference – Innovation and Economic Growth, 2010 , Available at SSRN: https://ssrn.com/abstract=1514137 or http://dx.doi.org/10.2139/ssrn.1514137

Gavin Clarkson

Native American Capital ( email )

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HOME PAGE: http://NativeAmericanCapital.com

Marshall W. Van Alstyne (Contact Author)

Boston University – Questrom School of Business ( email )

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Boston, MA 02215
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HOME PAGE: http://questromapps.bu.edu/mgmt_new/Profiles/VanAlstyneMarshall.html

Massachusetts Institute of Technology (MIT) - Sloan School ( email )

Initiative on the Digital Economy
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Cambridge, MA 02142
United States
617-253-0768 (Phone)

HOME PAGE: http://web.mit.edu/marshall/www/home.html

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