Kickstart my Art: Are Intellectual Property and Crowdfunding Complements or Substitutes?

Abstract

Traditional wisdom holds that intellectual property (IP) laws are necessary to ensure that art and science are produced by solving the free rider problem of using or copying works without payment. Recently, a new method of financing goods has emerged, known as crowdfunding, where producers can solicit small individual donations from a large number of people. I construct a simple game-theoretic model in order to understand the interaction between this new method and existing methods that use IP laws. The model determines when it is efficient to rely on one method, the other, or both. I find that all successful institutions that promote creativity and innovation establish a patronage relationship where a patron bears the fixed costs of the creator in exchange for something of value and distinguish between ‘personal patrons,’ and ‘commercial patrons.’

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