Determinants of software piracy under risk aversion: a model with empirical evidence

This paper studies the determinants of software piracy in world economies from a risk avoidance perspective. A risk aversion model for the commercialization of pirated software is developed to account for behavioral elements of risk and uncertainty avoidance among countries’ software pirates (i.e., counterfeiters and suppliers) and test empirically for the effects of country characteristics on piracy levels. Panel regression analysis is conducted to identify the determinants of software piracy using this model on a data set of 87 countries during 2007–2011. The empirical results confirm those obtained in prior research (e.g., the inverted U-shaped relationship between GDP per capita and piracy rates) but divulge that the behavioral-country component capturing the attitudes towards risk of software pirates improves the explanatory power of the statistical regressions after controlling for country performance and institutional factors. We also show that human development and good country governance reduce piracy rates. Besides providing support for our risk aversion-based piracy model and hinting at the need to consider population behavior in policy-making, these findings underline the relevance of human development and country institutions in explaining software piracy rates.