Want to read about a market-based institution that can improve on copyrights and patents? Check out my paper, “Prediction Markets for Promoting the Progress of Sciences and the Useful Arts,” 14 George Mason Law Review __ (2006) (forthcoming). You can download a copy here. The abstract:
Copyrights and patents promote only superficial progress in the sciences and useful arts. Copyright law primarily encourages entertaining works, whereas patent law mainly inspires marginal improvements in mature technologies. Neither form of intellectual property does much to encourage basic research and development. Essential progress suffers.
Prediction markets offer another way to promote the sciences and useful arts. . .
. . . In general, prediction markets support transactions in claims about unresolved questions of fact. A prediction market specifically designed to promote progress in the sciences and useful arts – call it a scientific prediction exchange or SPEx – would support transactions in a variety of prediction certificates, each one of which promises to pay its bearer in the event that an associated claim about science, technology, or public policy comes true. Like other, similar markets in information, a scientific prediction exchange would aggregate, measure, and share the opinions of people paid to find the truth.
Because it would reward accurate answers to factual questions, a SPEx would encourage essential discoveries about the sciences and useful arts. Researchers and developers in those fields could count on the exchange to turn their insights into profit. In contrast to copyrights or patents, therefore, a SPEx would target fundamental progress. Furthermore, and in contrast to copyrights and patents, the exchange would not impose deadweight social costs by legally restricting access to public goods. To the contrary, a scientific prediction exchange would generate a significant positive externality: Claim prices that quantify the current consensus about vital controversies.
This article measures copyright and patent law against the Constitution’s call for promotion of the Progress of science and useful Arts, to find those traditional forms of intellectual property lacking. As a cure for that policy failure, it suggests scientific prediction exchanges. Given that such exchanges offer the promise of large net public and private benefits, why don’t they already thrive in the United States? Because the laws written for commodity futures, securities, and gambling markets cast a pall of legal uncertainty over scientific prediction exchanges. To ease that unwarranted burden, the article explores a variety of strategies designed to guarantee the legality of scientific prediction exchanges. The article concludes with an all-too-apt illustration of how legal risks can discourage prediction markets from promoting the progress of science and the useful arts.