The Arrow information paradox (information paradox for short, or AIP), and occasionally referred to as Arrow's disclosure paradox, named after
Kenneth Arrow
Kenneth Joseph Arrow (23 August 1921 – 21 February 2017) was an American economist, mathematician, writer, and political theorist. He was the joint winner of the Nobel Memorial Prize in Economic Sciences with John Hicks in 1972.
In economics ...
, American economist and joint winner of the
Nobel Memorial Prize in Economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...
with
John Hicks
Sir John Richards Hicks (8 April 1904 – 20 May 1989) was a British economist. He is considered one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economic ...
,
is a problem faced by companies when managing
intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
across their boundaries. It occurs when they seek external technologies for their business or external markets for their own technologies. It has implications for the value of technology and innovations as well as their development by more than one firm, and for the need for and limitations of patent protection.
Arrow's information paradox theory was set out in a 1962 article by K. J. Arrow. Cornell Law School professor Oskar Liivak has written in a paper for a conference at Stanford University that Arrow's article "has been one of the foundational theoretical pillars of the incentive based theory of patents as Arrow’s work is thought to rule out a strictly market-based solution".
[Liivak, Oskar]
''The (Relatively) Easy Case for Patents on Inventions''
(2012). Retrieved August 7, 2014.
A fundamental tenet of the paradox is that the
customer
In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for ...
, i.e. the potential purchaser of the information describing a technology (or other information having some value, such as facts), wants to know the technology and what it does in sufficient detail as to understand its capabilities or have information about the facts or products to decide whether or not to buy it. Once the customer has this detailed knowledge, however, the seller has in effect transferred the technology to the customer without any
compensation.
This has been argued to show the need for patent protection.
If the buyer trusts the seller or is protected via contract, then they only need to know the results that the technology will provide, along with any caveats for its usage in a given context. A problem is that sellers lie, they may be mistaken, one or both sides overlook side consequences for usage in a given context, or some
unknown unknown
"There are unknown unknowns" is a phrase from a response United States Secretary of Defense Donald Rumsfeld gave to a question at a U.S. Department of Defense (DoD) news briefing on February 12, 2002, about the lack of evidence linking the gove ...
affects the actual outcome.
Discussions of the value of patent rights have taken Arrow's information paradox into account in their evaluations. The theory has been the basis for many later economic studies. These include theories that pre-patent innovation can be carried out only by a single firm.
[King, Andrew and Karim R. Lakhani]
''Using Open Innovation to Identify the Best Ideas''
MIT Sloan Management Review Magazine: Fall 2013. September 11, 2013. Retrieved August 7, 2014.
See also
*
Arrow's impossibility theorem
Arrow's impossibility theorem, the general possibility theorem or Arrow's paradox is an impossibility theorem in social choice theory that states that when voters have three or more distinct alternatives (options), no ranked voting electoral syste ...
*
Non-disclosure agreement
A non-disclosure agreement (NDA) is a legal contract or part of a contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish ...
*
Zero-knowledge proof
In cryptography, a zero-knowledge proof or zero-knowledge protocol is a method by which one party (the prover) can prove to another party (the verifier) that a given statement is true while the prover avoids conveying any additional information a ...
Notes
References
*
*
{{Economic paradoxes
Intellectual property law
Paradoxes in economics