The optimal level of copyright protection

We specify the optimal level of copyright protection for an individual producer and the society as a whole. For an individual producer, the optimal level is (i) no protection, (ii) the level under which the producer's overall profit net of the development cost is zero, or (iii) full protection. The optimal level for the society, on the other hand, critically depends on the distribution of firms' development costs. We also show that an increase in copyright protection may increase or decrease the social welfare loss due to underutilization, while it will always decrease the social welfare loss due to underproduction. (C) 2002 Elsevier Science B.V. All rights reserved.