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 \vspace*{-1in} \noindent \textbf{ An Economic Approach to  the Ethics of Copyright Violation }\footnote{

4 May 2005.   Eric

Rasmusen.

  Erasmuse@Indiana.edu, http://www.rasmusen.org.}

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$b$= consumer benefit from the product.  

 If the consumer copies  without paying the  originator, he incurs cost $n_i c$, where lack of technological sophistication  $n_i$ is   distributed   with density $g(n)$ on support $[0, \infty]$. 



   If he buys instead, he  pays the price $p$ and incurs the   transaction cost $t$, and the originator incurs production cost $c_o$ and transactions cost $t_o$.  



  

 Consumers differ in their degree of morality, $m_i$, distributed   with density $f(m)$ and support $[0, \infty]$. The social norm consists  of a pair of numbers $(g, s)$ for guilt and self-satisfaction. A consumer who copies loses $m_i g$ in utility.  A consumer who buys  the product, on the other hand  gains $m_i s$ in utility.



Consumer $i$  will prefer  copying to buying if 

\begin{equation} \label{e01}

 \pi (copying) = (b -m_i g - n_i c  ) >    (b   - p  - t +  m_i s) = \pi (buying)

 \end{equation} 

 It may be, however, that not using the product is better for him than either paying or copying.  



The originator's payoff is $v=0$ if the product is not used, 

$v=b_o$ if it is copied, 

and $v= p + b_0 - t_0 - c_o$ if it is bought.



 $x$ = the percentage of the utility of a guilty copying consumer that we count as social benefit. 



$k (originator\;  payoff)$ = value of the incentive for future creation

 

\noindent

{\it  Reasons To Not Have a Norm against Copying: }



\noindent 1. If the consumption benefit of copiers does not add to  social welfare ($x$ is small or negative), then making copying immoral eliminates the positive effect on social welfare that copiers would otherwise have.  

  

\noindent 2. If many people  are copying, many people must feel guilt.  



\noindent 3. Substitution to non-use  



 \noindent 4. The distortion created by the positive price for a good with zero marginal product (balanced by the incentive effect for creation-- but a {\it marginal }incentive effect). 



\noindent

{\it Two Useful Implications: }



\noindent

(a)   Copy when you wouldn't buy otherwise. 

 

\noindent

(b)   Don't copy when buying has   lower real costs, unless you wouldn't buy otherwise.    





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