Suppose that a software product S will cost $10,000,000 to develop, that there are one million people who would place a value on it of $10 each, one million who would place a value on it of $30 each, one million who would place a value on it of $75 each, and one million who would place a value on it of $100 each. Suppose too that, once developed, S can be downloaded at no cost from the Internet.
(a) Is it socially ideal for the software to be developed? If so, according to efficiency, who ought to have the software? What will social surplus be?
(b) Under intellectual property rights, would a company that can spend $10,000,000 to develop S do so? What price would it charge, who would buy S, and what would social surplus be?
(c) Under a reward system, suppose the government were to pay $150,000,000 in a reward to the company. What would the company do? Given that the price of S would be zero, who would use S and what would be social surplus? Comment.
(d) Continuing, under a reward system, what would be the per capita (among the 4 million people mentioned) increase in taxes necessary to finance the reward system. Who would be better off under the reward system? What if there are 2 similar products, one called T, and those who get only $10 from S get $100 from T, those who get $30 from S get $75 from T, etc. Comment.
Suppose that a software product S will cost $10,000,000 to develop, that there are one million people who would place a value on it of $10 each, one million who would place a value on it of $30 each, one million who would place a value on it of $75 each, and one million who would place a value on it of $100 each. Suppose too that, once developed, S can be downloaded at no cost from the Internet.
(a) Is it socially ideal for the software to be developed? If so, according to efficiency, who ought to have the software? What will social surplus be?
(b) Under intellectual property rights, would a company that can spend $10,000,000 to develop S do so? What price would it charge, who would buy S, and what would social surplus be?
(c) Under a reward system, suppose the government were to pay $150,000,000 in a reward to the company. What would the company do? Given that the price of S would be zero, who would use S and what would be social surplus? Comment.
(d) Continuing, under a reward system, what would be the per capita (among the 4 million people mentioned) increase in taxes necessary to finance the reward system. Who would be better off under the reward system? What if there are 2 similar products, one called T, and those who get only $10 from S get $100 from T, those who get $30 from S get $75 from T, etc. Comment.
