Tuesday, March 05, 2002

Compulsory licensing Ages ago I wrote about how Napster could work, essentially by a flat-fee subscription that's distributed according to usage. The business side of this is compulsory licensing, which the linked article writes up well. This structure means that artists can be compensated without record company interference, and will therefore be blocked by the RIAA. However, given the extreme complexities in licensing (as the RIAA themselves are discovering in the Napster case) it might be legislated anyway.

This sort of licensing permits copyright holders to be compensated for their work without giving them a veto over new technology. This is incredibly good. How it's implemented, though, is crucial for how much good it does overall. Some people talk casually about taxing ISPs (especially broadband), ignoring the very high fixed costs of entry, and therefore not considering how marginal markets will be unserved if service is taxed. The loss to society in this case is the entire consumer surplus those people would get. So the most efficient tax would be a small one on an existing good with highly inelastic demand that is currently lightly taxed. So not cell phones or long distance.

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