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#'''Indivisibility'''#'''Inappropriability'''#'''Uncertainty'''

Side note: Indivisibility in this context refers to the fact that information can not be divided according to efficient use (see below). This should be compared with the notion of a [http://en.wikipedia.org/wiki/Public_goods public good] (which is '''non-rival ''' and '''non-excludable'''). Non-rival means that the consumption of the good by one individual does not reduce it for another individual. Non-excludable means that no-one can be effectively excluded.

Innovation is an '''inherently uncertain undertaking'''. The uncertainty in the production and ex-post valuation of an innovation leads to a need for insurance for risk-averse agents involved in the production. However, any '''insurance has an inherent moral hazard problem ''' - the greater the pay off in the state of the world without the invention, the less incentive the agent has to work to produce the invention, and the less likely the invention will be realized.

Overall, the '''dulled incentives will lead to an underinvestment in risky activities'''.

Supposing that innovation results in an information based invention that can be regarded as a [http://en.wikipedia.org/wiki/Commodity commodity], and that the '''cost of transmitting the information were zero''', the '''socially optimal allocation would be unlimited distribution at a price of zero'''. Further a piece of information is by definition indivisible.

If a monopolist owner of the information were to sell it, the buyer could reproduce it at little or no cost (i.e. information is non-rival). If the ownjer owner doesn't sell it but uses it, this use will be socially inefficient, as well as possibly privately inefficient (the owner may not be the best user).