The Nature and Incidence of Software Piracy: Evidence from Windows

This chapter evaluates the nature, relative incidence, and drivers of software piracy. The authors measure piracy for a specific product - Windows 7 - which was associated with a significant level of private sector investment. Using anonymized telemetry data, the authors characterize how piracy occurs, the relative incidence of piracy across different economic and institutional environments, and the impact of enforcement efforts on choices to install pirated versus paid software. The authors find that: (a) most "retail piracy" can be attributed to a small number of widely distributed "hacks" available through the Internet, (b) the incidence of piracy varies significantly with the microeconomic and institutional environment, and (c) software piracy primarily focuses on the most "advanced" version of Windows (Windows Ultimate). After controlling for a small number of measures of institutional quality and broadband infrastructure, one important candidate driver of piracy - GDP per capita - has no significant impact on the observed piracy rate, while the innovation orientation of an economy is associated with a lower rate of piracy. Finally, the authors evaluate how piracy changes in response to country-specific anti-piracy enforcement efforts against specific peer-to-peer websites; overall, they find no evidence that such efforts have affected the incidence of software piracy.