Textbook prices are a rapidly increasing cost to college students. This paper examines whether it possible to design policies that would make textbooks less expensive for students by eliminating the rents associated with copyright monopolies.

Dean Baker

English

Research Papers in Economics

Author:
Dean Baker
       Are Copyrights A Textbook Scam?
Alternatives to Financing Textbook Production
in the 21st Century
Center for Economic and Policy Research
1611 Connecticut Avenue, NW
Suite 400
Washington, D.C. 20009
Tel: 202-293-5380
Fax: 202-588-1356
www.cepr.net
September 2005Title Page
Table of Contents
Executive Summary
Introduction
                     The Inefficiencies of Copyright Protection
A 21st Century Alternative for  Supporting Textbook Production
Conclusion
References
Contents
i
ii
1
2
3
4
5
6
About the Author
Dean Baker is Co-Director of the Center for Economic and Policy Research.
ii• In addition to the losses that result
directly from the gap between price and
production costs, textbook publishers
engage in a variety of economically
wasteful rent-seeking activities to
maximize their profit, such as increasing
the length of textbooks or the frequency
of new editions.
• In the absence of copyright protection
it would be necessary to have an
alternative mechanism for financing the
production of textbooks. If the
government were to appropriate an
amount equal to 0.01 percent of the
federal budget ($300 million annually),
it would be sufficient to finance the
production of 5000 textbook titles a
year, assuming an average cost of
production of $60,000 a piece.
• If textbooks were produced without
copyright protection, then professors
would have far more flexibility in
designing their courses. They could
freely choose chapters from the texts
that they felt best covered specific
topics, rather than being bound by a
single text for an entire course.
• A system of publicly funded textbook
production could exist side by side with
a system of copyright monopoly
financed textbook production. This
would allow for the market to
determine which form of government
subsidy is more efficient.
extbooks are a large and rapidly growing
expense for college students. According to the
Government Accountability Office (GAO), the
cost of textbooks and supplies came to $898
for an average first year, full-time student at a
four-year public university in the 2003/2004
academic year.1 This represents approximately
170 hours of work at a minimum wage job.
The high cost of college textbooks is one of
the factors leading students to take on ever
higher levels of debt to cover their college
expenses.2
This paper examines whether it possible to
design policies that would make textbooks less
expensive for students. It points out that:
• Textbooks are only expensive because
they are subject to copyright
protection, a relic of the medieval guild
system. In the absence of government
imposed copyright monopolies, paper
copies of textbooks could be made at
a very low cost, and electronic versions
could be made available at zero cost
over the Internet.
• Copyright protection in textbooks leads
to enormous inefficiencies, just like any
other government intervention in the
market. However, while other forms of
intervention create relatively small gaps
between the price and the actual cost
of production (for example, trade
barriers rarely raise the price of
imported goods by more than 15 to
20 percent), copyright monopolies
lead to enormous gaps. As economists
would predict, the large gap between
price and the cost of production
resulting from copyrights leads to
substantial economic distortions.
Copyright
protection in
textbooks leads
to enormous
inefficiencies,
just like
any other
government
intervention in
the market.
Textbooks are
only expensive
because they are
subject to
copyright
protection, a
relic of the
medieval guild
system.
Executive Summary
Are Copyrights a Textbook Scam? ! 1
TTextbook costs have consistently outpaced the overall rate of inflation,
presenting a large and rapidly growing burden to millions of college
students. According to the Government Accountability Office (GAO),
textbook prices have been rising about 6 percent annually, or twice as
fast as the overall rate of inflation, since the 1987/1988 academic year.
The GAO estimates that the average first-year student at a four-year
public university spent $898 on textbooks and supplies in the 2003/
2004 academic year.1 This means that a student working at a minimum
wage job would have to put in nearly 170 hours of work each year,
just to pay for her textbooks. High textbook costs, along with rapidly
rising tuition, are imposing a substantial financial burden on college
students. The debt accumulated by a new graduate now averages more
than $15,000.2
In the Internet Age, when vast amounts of information can be transferred
at zero cost over the web, there is no reason that students should have
to work so hard just to get the reading material for their classes. In
principle, this material could be obtained at no cost – although many
students may want hard copies of some or all of the items in a text,
which would entail some printing expense. Still, the costs involved in
the physical reproduction of texts are a tiny fraction of what students
currently pay.
The reason that textbooks are costly is that the government grants
textbook publishers copyright monopolies. Copyright monopolies allow
the publishers to prevent anyone from competing with them in the
market. They are the only ones that can sell a copyrighted textbook in
whole or in part. This prevents individuals from freely reproducing a
textbook or making it available over the Internet.
Of course there is a rationale for copyright monopolies: the monopoly
allows the publisher to recoup the expenses of producing the book, the
fees paid to the author(s), editors, illustrators and other upfront costs
associated with putting together the textbook. However, copyrights
are only one way to cover these costs and not necessarily the best
way. Copyrights are a relic of the medieval guild system. While they
may have been an efficient mechanism to support creative work in that
era, it does not follow that they are the most efficient mechanism for
supporting creative work in the Internet Age.
A student work-
ing at a mini-
mum wage job
would have to
put in nearly
170 hours of
work each year,
just to pay for
her textbooks.
Introduction
Are Copyrights a Textbook Scam? ! 2
The reason that
textbooks are
costly is that
the government
grants textbook
publishers.
copyright
monopolies.Copyright monopolies also provide publishers
with an incentive to change the publishing
patterns or structure of their textbooks in ways
that maximize their profit, but offer little or no
benefit to students. For example, publishers
may issue new editions more frequently than is
justified by developments in the field, in the
hope of prompting faculty to assign the new
editions, thereby avoiding the possibility that
many students may be relying on recycled
copies of an earlier edition. If they believe that
they can justify a higher price by having a longer
textbook, or including supplemental materials,
then publishers will have incentive to alter their
textbooks to maximize their profit. Since
textbooks are not generally divisible (typically
students can’t buy a textbook by the chapter),
the incentives provided by copyright
monopolies can lead to textbooks being longer
than is really optimal from the standpoint of
presenting the material for a course. Perhaps
an even more serious downside to such
practices by publishers is that it could lead
professors to distort their teaching, since they
may feel a need to assign most or all of a
required text, if the book cost their students
$100-$150, as is often the case.
Economists view copyright monopolies as
inefficient because they create a large gap
between the price of a textbook and the
marginal cost - the cost to the publisher of
creating an additional copy. This cost can
effectively be zero, when the option exists to
transfer material over the Internet. This gap
between price and marginal cost is the exact
same issue that leads economist to view trade
barriers as inefficient. Tariffs or quotas on
imports cause consumers to pay prices that are
higher than the production costs. However,
trade barriers in the United States rarely raise
the price of protected goods by more than 15
or 20 percent. By contrast, copyright
protection can allow a textbook publisher to
sell a book that would be available at zero cost
over the Internet without copyright monopolies
for as much as $100 to $150. The inefficiencies
that result from such large gaps between price
and marginal cost are of course much larger
than the inefficiencies that result from 15-20
percent tariff on a short or pair of shoes.1
Setting prices above marginal cost also leads
to other forms of inefficiency. Textbook
publishers respond to the incentive created by
copyright monopolies by trying to maximize the
economic rents they earn on their textbooks.
Most obviously, this means substantial
advertising and marketing expenditures, in
order to get their textbooks as widely adopted
as possible. While these expenditures are not
entirely wasteful from an economic standpoint
– they do provide information to the professors
choosing textbooks – publishers carry through
the amount of marketing that maximizes their
private profit, not economic efficiency. In this
sense, the granting of copyright monopolies
ensures that more marketing will take place
than is optimal from an economic standpoint.
The granting of
copyright
monopolies
ensures that
more marketing
will take place
than is optimal
from an
economic
standpoint..
Publishers may
issue new
editions more
frequently than
is justified by
developments in
the field, in the
hope of
prompting
faculty to assign
the new editions
The Inefficiencies of Copyright Protection
Are Copyrights a Textbook Scam? ! 3specific teaching needs. For example, if a
history professor believed that one text
provided the best treatment of the Civil War,
but a second text provided the best treatment
of the reconstruction period, there would be
no reason that he could not assign the Civil
War chapter(s) from one text and the
reconstruction chapter(s) from another text.
The same would be true in all other disciplines
as well. Eliminating copyright monopolies over
textbooks, and placing material in the public
domain, will allow professors to be far more
flexible in their teaching.
Having large amounts of material in the public
domain would also reduce the need for
universities to play the role of law enforcement
officers – ensuring that their libraries were not
violating copyright rules, or preventing faculty
from using unauthorized Xerox versions of
copyrighted material, or even policing faculty
who might try to resell promotional copies of
popular texts. University administrators could
instead devote more attention to providing
education to their students.
If a substantial portion of textbook production
were to be financed through the public sector,
then it is important that it be done in an efficient
manner. This would mean preserving a large
role for competition. This can be done by
dividing whatever amount is provided for
textbook production among a number of
competing textbook publishing firms. For
example, if $300 million a year is appropriated,
this sum could be divided among 10 firms, each
given $30 million a year. The firms’
performance could be evaluated at regular
intervals (e.g. 10 years), with the worst two
performers put out of business and replaced
by new firms. This would ensure that failed firms
While it is easy to identify ways in which
copyright monopolies lead to market distortions
and economic inefficiency, copyrights do fill the
need of providing an incentive for writing,
editing, and designing textbooks. Without some
alternative mechanism for supporting this work,
few, if any, textbooks would be written. The
question is whether there are better mechanisms
than copyright monopolies for supporting
textbook publishing.
One obvious alternative is simply direct public
financing of textbook publishing, with all
supported work being placed in the public
domain, where it can be freely copied or
circulated over the web. This would effectively
make textbooks free to students, or cost them
the expense of printing out hard copies, if they
chose to have them in this form. (Presumably,
the availability of large amounts of text on the
web available for downloads would alter
technology and business practices. Stores might
specialize in making bound copies of customized
material downloaded from the web.)
Some basic arithmetic suggests that a relatively
small commitment of public funds could go very
far towards filling the need for textbook
production. For example, an annual
appropriation of $300 million (0.01 percent of
the federal budget) would be sufficient to finance
the production of 5,000 textbook titles a year,
if the cost of writing, editing, and illustrating a
textbook averages $60,000.
The availability of such a large amount of
material in the public domain would
undoubtedly change the way in which faculty
and students view textbooks. Since textbooks
would now be completely divisible, professors
could tailor their assignments toward their
Are Copyrights a Textbook Scam? ! 4
One obvious
alternative is
simply direct
public financing
of textbook
publishing, with
all supported
work being
placed in the
public domain,
where it can be
freely copied or
circulated over
the web.
A 21st Century Alternative for Supporting Textbook
Production
It would also be
possible to have
this system of
publicly
financed
textbook
production co-
exist with the
copyright
system...This
would
effectively allow
for a market
test of the
relative merits
of the two
systems.It is important to
note that this
competition is
not a case where
one system gets
a public subsidy
and the other
doesn’t. Both
systems get
public subsidies.
Are Copyrights a Textbook Scam? ! 5
can freely reproduce copies of the new work
without any risk of punishment from the
government or being required to pay civil
damages to the author and publisher of the
text.
do not continue to waste public funds
indefinitely.
It would also be possible to have this system
of publicly financed textbook production co-
exist with the copyright system. Current
textbook publishers could still produce their
textbooks subject to copyright protection, and
professors who view these books as
sufficiently superior to merit the expense could
still assign them to their students. This would
effectively allow for a market test of the relative
merits of the two systems.
It is important to note that this competition is
not a case where one system gets a public
subsidy and the other doesn’t. Both systems
get public subsidies – the subsidies just take
different forms. In the proposed alternative,
the subsidy takes the form of direct funding.
In the copyright system, the subsidy takes the
form of a government enforced monopoly. The
question is which mechanism of providing
subsidies leads to better outcomes.
If the two systems existed side by side, it would
be necessary to have some rule that would
constrain textbook authors in the publicly
financed system from benefiting from copyright
monopolies once they have established a
reputation for themselves. This could be
accomplished simply by having a substantial
period of time (e.g. 7-10 years) between when
a textbook author receives support under the
public system and when she can gain copyright
protection for a later textbook. Such a rule
would be very simple to apply since it is
completely self-enforcing. If a textbook author
violates this rule, and gains a copyright for a
textbook before the waiting period has lapsed,
then the copyright is simply invalid. AnyoneTextbooks are a large and rapidly growing expense for millions of college
students. This expense is completely unnecessary – it results entirely from
the fact that the United States relies on copyright monopolies to finance
the production of textbooks. It is easy to design alternative systems for
financing textbook production, which take full advantage of the possibilities
created by the Internet and digital technology. Such alternatives could
make textbooks very cheap or even free for students who are satisfied
reading material on the web. Having college texts in the public domain will
also give professors much more freedom in selecting material, since they
would be able to customize their classes, assigning chapters from a number
of different texts.
It would take a very small commitment of public funds (e.g. 0.01 percent
of the federal budget) to largely replace the revenue generated for textbook
production through the copyright system. A system of publicly financed
textbook production could co-exist alongside the system of copyright
monopolies, allowing for a market test of the relative efficiency of the two
systems. Such an alternative system could offer large savings to students,
more flexibility to professors, and efficiency gains to the economy as a
whole.
It is easy to
design
alternative
systems for
financing
textbook
production,
which take full
advantage of
the possibilities
created by the
Internet
 and digital
technology.
Conclusion
Are Copyrights a Textbook Scam? ! 61 Government Accountability Office, “College Textbooks: Enhanced Offerings Appear to Drive
Recent Price Increases,” July 2005, Available at http://www.gao.gov/new.items/d05806.pdf
2 Boushey, Heather,  “The Debt Burden of New College Graduates,” Center for Economic and
Policy Research, September 2005, Available at http://www.cepr.net/publications/
student_debt_2005_09.pdf
3 Government Accountability Office, “College Textbooks: Enhanced Offerings Appear to Drive
Recent Price Increases,” July 2005, Available at http://www.gao.gov/new.items/d05806.pdf
4 Boushey, Heather,  “The Debt Burden of New College Graduates,” Center for Economic and
Policy Research, September 2005, Available at http://www.cepr.net/publications/
student_debt_2005_09.pdf
5 The size of the economic loss due to protection (copyright or trade) will also depend on how
responsive demand is to increases in price.
References
Are Copyrights a Textbook Scam? ! 7

Are Copyrights a Textbook Scam?

Are Copyrights a Textbook Scam? Alternatives for Financing Textbook Production in the 21st Century

http://www.cepr.net/documents/publications/textbook_2005_09.pdf

Are Copyrights a Textbook Scam? Alternatives for Financing Textbook Production in the 21st Century

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics