Crowding-Out Effects of Public Libraries and the Public Lending Right

The public lending right (PLR) compensates authors for losses caused by public libraries' free lending of books. Setting the appropriate rate to maintain authors' incentives to create new works is important. We construct a novel dataset that integrates bookstores' sales data with copy data from public libraries in Japan and quantify the crowding-out effects of public libraries. We control for title-municipality-specific, months-after-publication-specific, and municipality-month-specific unobserved heterogeneities. We found that overall crowding-out effects exist. Moreover, we found the the effects to be highly progressive: the effects are stronger for popular titles. The total loss in revenue during the data period is 17.5% of actual sales revenue, which is higher than public libraries' expenditure on books (5%). The estimates indicate that the prevailing PLR rates are overly low to compensate for losses for popular books but that this could be a pure subsidy to other books.