The Prediction Exchange: A New Way to Promote Progress in the Sciences and Useful Arts
Copyright and patent law promote only superficial progress in the sciences and useful arts. Copyright law primarily encourages entertaining works, whereas patent law mainly inspires modest improvements in practical devices, materials, or processes. Neither form of intellectual property does much to encourage basic research or development of natural, social, or mathematical discoveries. To promote those sorts of fundamental advances, we instead rely on hard-won grants and rare prizes.
This paper introduces the prediction exchange as a better way to promote fundamental progress in the sciences and useful arts. As a species of information market (also known as "idea futures," "prediction," or "decision" market), the prediction exchange would provide a forum for the buying and selling of claims about the future. Specifically, the exchange would promote transactions in a variety of prediction certificates, each one of which would promise to pay its bearer in the event a particular claim about science, technology, or public policy comes true.
Because it would reward accurate answers to unresolved questions, a prediction exchange would encourage essential discoveries about nature, math, and human society. Researchers and developers in those fields could count on the prediction exchange to turn their insights into profit. Compared to copyrights or patents, therefore, a prediction exchange would promote more fundamental progress in the sciences and useful arts. Furthermore, and in contrast to copyrights and patents, a prediction exchange would not impose the deadweight social costs of legally restricting access to public goods. To the contrary, the exchange would generate a significant positive externality: Claim prices that quantify the current consensus about important questions of science, technology, and public policy.
This paper 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. It then describes how a prediction exchange would work, and why it would succeed where copyright and patent law have failed. Given that it offers large net public benefits, why doesn't a prediction exchange already exist? Because it remains for now a largely unknown and legally risky institution. This paper aims to ameliorate the first problem by explaining the hows and whys of a prediction exchange. To help us move from theory into practice, moreover, the paper closes with a proposal about how to ensure the legality of prediction exchanges under U.S. law.
Tuesday, November 15, 2005
Posted by Tom W. Bell at 3:59 PM
I earlier alluded to my plan to write a paper on how information markets can compete with patents in encouraging innovation. Since then, I've decided to expand the analysis to discuss copyrights, too. I wrote up an abstract of the proposed paper and applied to present it at the American Association of Law Schools' 2006 Workshop on Intellectual Property, in Vancouver, B.C. I offer it, here, as good grist for your critical mill:
Labels: prediction markets