IPI has released a study on the economic costs of piracy. These studies often use some controversial assumptions, but my understanding is that this particular study used more conservative methodology than some of the industry studies and it is worth looking at. I'll also try to track substantive critiques and responses, as they come in.

Techdirt chimed in early here; Sadly, the critic does not appear to have read the study, as he states that the IPI study assumes that each pirated copy equals a sale. In fact, the IPI study does *not* make that assumption; it counts 20% of illegal downloads as lost sales, and 65.7% of pirated CDs as lost sales. [Note: The TechDirt critique has been corrected].

Measuring this effect gets awfully complicated. What about the advertising effect--the fact that downloads might lead to sales? What about the counter-advertising effect--the fact that some sales lead to downloads? (One study showed that some music consumers buy a tune on iTunes, and if they like it, will download the whole album for free illegally).

Are the lost sales figures *net* losses--that is, taking both of these effects into account? Or is there still more figgering to be done? When I looked into this writing on computer games, there was little raw data to help--but there was some. The data showed that a lot of game rentals--76 percent--lead to sales. But pirated copies of games tended to *supplant* sales (net)--with about 73 percent of gamers reporting that they would have bought the game if they had not gotten the pirated version. An additional bit of meta-data--if there is a strong "free advertising" effect from downloads, retail sales should be soaring. They are not. It seems likely that the advertising effect from pirated stuff is weak--certainly not a net positive. Add in the decided peculiarities of some of the studies that purport to show no negative effect on sales from downloading, and data to the contrary (come back for more on this forthcoming in future) ... and the skeptical attacks on the IPI assumptions look more like hooliganism than serious scholarship.

Some skeptics, though, make an argument that is worth looking at in more detail. That is, the argument that lost jobs in the U.S. from piracy do not materialize, as workers find work elsewhere. (Obviously, for brevity, I'm severely truncating the argument--my purpose is not to make it here, but to refer to it.) This argument is a familiar one. One might here a version of this argument, for example, in a discussion of plant closures. Workers will be re-employed elsewhere; the overall outcome is still efficient. But piracy and plant closures are very different. The argument is correct for plant closures, but it doesn't work for piracy. What's the difference?

The difference is that the closure of a plant comes about without violating anyone's rights. People are making decisions about what to do with their *own* resources; they are making mutually beneficial trades, increasing wealth overall though there is hardship for some. But economic losses that come about when rights are violated opens a different can of worms entirely. Ripping people off does not take place within this realm of wealth-creating trades. One would never argue that job losses or lost sales that came about as a result of losses due to credit card theft would be efficient overall, because the workers would find other jobs!

The argument, therefore, that economic losses as a result of piracy are efficient can only consistently be made if one does not believe that copyright ought to exist at all... Which is certainly an argument that can be made (though as I've stated elsewhere I believe it rests on an oversimplification of natural rights theory). But this is not a line of argument available to run of the mill IP skeptics, who purport to support copyright in theory though they seem to oppose any attempt to actually enforce it.