Innovation Policy and the Economy

April 14, 2009
Adam Jaffe, Joshua Lerner, and Scott Stern: Organizers

Michael Kremer, Harvard University and NBER, and Heidi Williams, Harvard University
Incentivizing Innovation: Adding to the Toolkit

The expectation of receiving Intellectual Property Rights (IPR) -- such as patents -- creates incentives for research, but implementation imposes static efficiency losses and other costs. Kremer and Williams discuss recent proposals and present a case for incremental experimentation with other mechanisms for rewarding innovation, with an eye towards testing and refining those mechanisms. Some of them aim to promote innovation, as well as access to new technologies, conditional on their development. Voluntary mechanisms as opposed to mandatory mechanisms will involve lower risks of undermining expectations that research will be rewarded. Prizes, such as those recently offered by the X-Prize Foundation, have been successful in spurring research, but typically for demonstration projects rather than for innovations that are capable of being used at scale. To the extent that it is desirable to use reward systems to directly spur the creation of products for widespread use, the design of prizes could be usefully extended by conditioning rewards on a market test, as in the recent $1.5 billion pilot Advance Market Commitment (AMC) for a pneumococcus vaccine. Experimentation with this and other AMCs probably can inform the design of other mechanisms incorporating more complex ex post reward triggers, such as the proposed Medical Innovation Prize Fund. The authors discuss AMC design issues in more detail, focusing on design differences between AMCs for technologically closer products (such as a pneumococcus vaccine) and technologically more distant products (such as a malaria, tuberculosis, or HIV vaccine). With time, these and other mechanisms could be added to the toolkit for encouraging innovation.

FELIX Oberholzer-Gee, Harvard University, and Koleman Strumpf, University of Kansas
File-Sharing and Copyright

Antoinette Schoar, MIT and NBER
Globalization of Entrepreneurship

Jerry Thursby, Georgia Institute of Technology, and Marie Thursby, Georgia Institute of Technology and NBER
University Licensing: Harnessing or Tarnishing Faculty Research?

The central issue Thursby and Thursby consider is whether university patent licensing, afforded by the Bayh-Dole Act, has diverted universities away from their basic research mission. The Act, passed in 1980, was intended to stimulate the transfer of federally funded research to industry. While statistics on licensing activity suggest that it has served this purpose, they have also fueled debates as to whether licensing has led faculty to abandon basic research agendas. Thursby and Thursby show that, quite to the contrary, when realistic complexities of the research environment are taken into account, it is just as natural to expect basic research productivity to have been enhanced by licensing. Their evidence on disclosure, funding, and publications (their nature and impact) of faculty in eleven universities lends credence to the notion that, rather than diverting faculty research, licensing is part of a flurry of activities that can be associated with fundamental discoveries from fairly basic research.

Paula Stephan, Georgia State University and NBER
The “I’s” Have It: Immigration and Innovation, the Perspective from Academe

Considerable attention has focused in recent years on the role of the academy in fostering innovation. Stephan demonstrates that the foreign born are a large and growing component of the U.S. university community. They compose more than 25 percent of the tenure-track faculty, make up approximately 60 percent of the postdoctoral population, and represent more than 43 percent of the doctoral degrees awarded in science and engineering. Almost 50 percent of the latter come from China, India, and South Korea. The foreign born contribute to the productivity of the university. For example, 44 percent of the first authors of U.S. papers in Science are foreign. There is some evidence that the foreign born disproportionately make exceptional contributions in science and engineering and, at least at elite universities, that their marginal product is higher than that of the native born. They also constitute approximately one-third of the placements of new PhDs with U.S. firms—a major mechanism by which tacit knowledge is transmitted from the university to industry. However, not all of the foreign born who come to study or work in the U.S. stay. The ten-year stay rate for those who received their PhDs, for example, is 58 percent. It increased dramatically in the 1990s but the pattern appears to have leveled off recently and is likely to decline as developing countries recruit scientists and engineers to work in newly emerging sectors as well as universities. Despite spillovers to other countries, the simplest of calculations leads one to conclude that in the past the United States has gained far more than it has lost by the foreign born coming to study and work in science and engineering at U.S. universities. Whether these benefits persist will depend upon whether the foreign born continue to come in large numbers and to stay in large numbers. The Stimulus Package and President Obama’s proposed 2010 budget, with its funds for R and D, provide resources that could encourage studying and working in the United States. They also provide for resources that could make careers in science and engineering more appealing to native born, something that will be essential if the foreign born cease to come or stay.

Matthew Slaughter, Dartmouth College and NBER, and Iain Cockburn, Boston University and NBER
The Global Location of Biopharmaceutical Knowledge Activity: New Findings, New Questions

Location possibilities for biopharmaceutical firms are expanding, driven by factors such as falling natural and political barriers to trade and communication, extension and strengthening of patent protection through institutions including the World Trade Organization, and growing supplies of skilled labor and related infrastructure in large, relatively low-cost countries. Cockburn and Slaughter examine the causes and consequences of this global expansion of knowledge discovery by biopharmaceutical firms. They first discuss the empirical evidence on the extent and nature of this process. They then examine whether this global spread of biopharmaceutical R and D supports or hurts host-country knowledge activity. They conclude that foreign knowledge discovery on the part of biopharmaceutical companies tends to complement, not to substitute for, home-country activities.

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