Innovation Policy and the Economy

April 14, 2015
Scott Stern of MIT and Josh Lerner of the Harvard Business School, Organizers

Ramana Nanda and Matthew Rhodes-Kropf, Harvard University and NBER

Financing Entrepreneurial Experimentation

The fundamental uncertainty of new technologies at their earliest stages implies that it is virtually impossible to know the true potential of a venture without learning about its viability through a sequence of investments over time. Nanda and Rhodes-Kropf show how this process of experimentation can be particularly valuable in the context of entrepreneurship because most new ventures fail completely, and only a few become extremely successful. The researchers also shed light on important costs to this process of experimentation, and demonstrate how these can fundamentally alter both the rate and direction of startup innovation across industries, regions and periods of time.

Yael Hochberg, Rice University and NBER

Accelerating Entrepreneurs and Ecosystems: The Seed Accelerator Model

Recent years have seen the emergence of a new institutional form in the entrepreneurial ecosystem: the seed accelerator. These fixed-term, cohort-based, "boot camps" for startups offer educational and mentorship programs for startup founders, exposing them to wide variety of mentors, including former entrepreneurs, venture capitalists, angel investors, and corporate executives; and culminate in a public pitch event, or "demo day," during which the graduating cohort of startup companies pitch their businesses to a large group of potential investors. In practice, accelerator programs are a combination of previously distinct services or functions that were each individually costly for an entrepreneur to find and obtain. The accelerator approach has been widely adopted by private groups, public and government efforts, and by corporations. While proliferation of accelerators is clearly evident, with worldwide estimates of 3000+ programs in existence, research on the role and efficacy of these programs has been limited. In this article, Hochberg provides an introduction to the accelerator model and summarizes recent evidence on their effects on the regional entrepreneurial environment.

Heidi L. Williams, MIT and NBER

Intellectual Property Rights and Innovation: Evidence from Health Care Markets

A long theoretical literature has analyzed optimal patent policy design, yet there is very little empirical evidence on a key empirical parameter needed to apply these models in practice: namely, the relationship between patent strength and research investments. Wiliiams argues that the dearth of empirical evidence on this question reflects two challenges — the difficulty of measuring specific research investments, and the fact that finding variation in patent protection is difficult — and summarizes the findings from two of her recent investigations which have made progress in starting to overcome these two empirical challenges (Budish, Roin and Williams (forthcoming) and Williams (2013)).

Karim Lakhani, Harvard University, and Kevin J. Boudreau, London Business School

Innovation Field Experiments: Empirical Insights and Policy Implications from Organizing Innovation Contests

In this paper, Lakhani and Boudreau discuss how field experiments can be applied to research and policy questions concerned with the design and organization of innovation contests. Although the theory of innovation contests is well advanced, there is a dearth of empirical evidence on how theory reflects observed behavior and its implications for their general deployment as a routine mechanism to elicit innovation. Results from an ongoing field experimental program at the Crowd Innovation Laboratory at Harvard University are presented to illustrate how causal explanations regarding the role of incentives, knowledge and search process can be derived for the innovation literature. The research program has simultaneously solved important innovation challenges for partner organizations like NASA and Harvard Medical School while simultaneously contributing experimental evidence of interest to the innovation literature.

Fiona Scott Morton, Yale University and NBER, and Carl Shapiro, University of California at Berkeley and NBER

Patent Assertions: Are We Any Closer to the Aligning Reward to Contribution?

The 2011 America Invents Act was the most significant reform to the United States patent system in over fifty years. However, the AIA did not address a number of major problems associated with patent litigation in the United States. In this paper, Morton and Shapiro provide an economic analysis of post-AIA developments relating to Patent Assertion Entities (PAEs) and Standard-Essential Patents (SEPs). For PAEs and SEPs, the researchers examine the alignment, or lack of alignment, between the rewards provided to patent holders and their social contributions. Their report is mixed. Regarding PAEs, the authors see real progress, largely due to a series of rulings by the Supreme Court. Legislation currently under consideration in Congress would further limit certain litigation tactics used by PAEs that generate rewards unrelated to contribution. The researchers also see real progress relating to SEPs, especially with the recent reform to the patent policies of the IEEE, a leading Standard-Setting Organization (SSO) and with several recent court decisions clarifying what constitutes a Fair, Reasonable and Non-Discriminatory (FRAND) royalty rate. However, the authors fear progress on the SEP front has stalled out, since other major SSOs do not seem poised to follow the lead of the IEEE. Antitrust enforcement in this area may help spur further progress.