Information Costs in Property, Intellectual Property, and Organizations
Abstract: This paper argues that property, intellectual property, and organizations all employ modular structures in order to manage complex interactions between economic actors. All three devices break complex systems of interactions between actors into constituent parts, within which interactions are intense but between which interfaces constrain the flow of information. The right to exclude in the law of trespass is the most basic and familiar example. This paper combines and extends an information-cost theory of property and a modularity-based theory of the firm to explain the property-like aspects of organizations—asset partitioning, legal personality, stability and flexibility over time, team production and the residual claim—as stemming from modular structures that go beyond the familiar “nexus of-contracts.” Similarly, intellectual property can achieve information-cost savings through the indirectness and simplicity of basic exclusion rules. Especially with a nonrival resource like information, the right mixture of exclusion, governance and open access remains an empirical question, but intellectual property, like property and organizational law, can be seen as a second-best solution of a complex coordination problem of attributing outputs to inputs.
