Government Failure
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Government Failure

Society, Markets and Rules

Wilfred Dolfsma

This highly unique book takes a fundamental look at when and how a government can fail at its core responsibility of formulating rules. Government, representing society, relates to the economy by formulating the rules within which (market) players should operate. Although market and business failure are much discussed in the economics literature, government failure is often overlooked. This book addresses this gap, exploring in detail what constitutes government failure.
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Chapter 7: Government failure, IPRs and economic development

Society, Markets and Rules

Wilfred Dolfsma


In the year 2000 some $142 billion in royalties were paid internationally by users of a specific piece of knowledge that was protected under Intellectual Property Right law (IPR) to those parties that owned these rights. Under current circumstances where knowledge and innovation play an increasingly significant role in the economy (Foray and Lundvall 1996; Cowan et al. 2000; Cooke 2002; Dolfsma and Soete 2006; Dolfsma 2005). IPRs have become increasingly prominent in debates and are almost unanimously deemed to favor economic development by policy-makers, and certainly by s in developed countries. While it has been acknowledged that some parties may benefit more from a system of IPRs than others, in relative terms a Pareto improvement is the expected outcome (Langford 1997). This has not always been the case. In addition, the academic (economic) community is almost unanimous about the system of IPR overshooting its goals. This has been the motivation to include IPRs in the WTO negotiations. The TRIPS agreement (trade-related aspects of intellectual property rights) of 1994 resulted from these negotiations. Especially during the 1990s the number of patents granted grew tremendously despite the fact that many scholars still supported Machlup’s (1958: 28) conclusion that: it would be irresponsible, on the basis of our present knowledge of its consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it.

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