week 6 Flashcards
innovation
must be introduced into the market so that consumers or other firms can benefit
innovation-led growth
lead economists and policy makers to focus on the importance of investments in technology and knowledge production
invention
enhances the stock of knowledge, but it does not instantaneously arrive in the market
product innovation
the introduction of a new product, or a significant qualitative change in an existing product
- New market
process innovation
the introduction of a new process for delivering existing goods and services
- Delivering more output using the same amount of input
problem of matching incentives to the value of the activity
If the innovator cannot charge all the beneficiaries of its innovation
possible market failure
the market system, guided by the independent actions of private firms, will not lead to the optimal amount of innovations
three main reasons for market failure
knowledge, innovation, cost
knowledge
ideas are goods with peculiar characteristics that make them very similar to public goods
non-rival knowledge
the use of existing knowledge by one person does not preclude use by any other and does not cost additional resources
non-excludable knowledge
the key issue is how easily knowledge can be accessed
free good
Since the marginal cost of using knowledge is zero, maximum efficiency in its use implies no restriction to access
non-rival good dilemma
only the anticipation of a positive price will guarantee the resources for creation of knowledge, but a positive price lead to under-consumption
free-riding
those who benefit from the goods have an incentive to avoid paying
market failure in knowledge
less resources in the production of new knowledge, less knowledge than what would be optimal from the social point of view
positive externalities
- if the production possibilities of one firm are positively influenced by the choices of another firm
- The innovation first introduced in the market by the innovator, benefits other firms without any monetary reward for the innovator
leaking out applied knowledge embedded in innovation
- Movement of personnel from one firm to another (learning by hiring)
- Informal communications networks among engineers and scientists
- Professional meetings at which information is exchanged
- Inputs from suppliers and customers
- Reverse engineering
social benefits of an innovation
take into account the value of all the positive externalities
indivisibility
R&D projects cannot be broken down into smaller, more manageable units
uncertainty
R&D projects have a very low success probability
intrinsic
belonging to the essential nature or constitution of a thing
three different types of innovation or technology policy
institution & regulation, support, direct involvement
increasing expenditures in formal R&D
the private sector, higher education government
R&D target UN SDG (sustainable development goals, 2015)
rise R&D expenditure as a proportion of GDP and researchers (in full-time equivalent) per million inhabitants
R&D target EU’s Lisbon Agenda (2000) and Europe 2020 strategy (2010)
3% of Gross Domestic Product (public and private
combined)
R&D target Netherlands
2.5% of GDP
intellectual property rights, R&D subsidies and tax credits
indirect, stimulate private investment in R&D
research grants
indirect, support basic research and knowledge production
government R&D
direct, basic research and knowledge production
pre-commercial procurement
direct, stimulate private investment in R&D
standards and regulation
indirect, improve framework, enhance demand
under-provision of innovation
re-assignement of property rights
patent
a document, issued upon application by a government office, which describes an invention and creates a legal situation in which the invention can only be exploited with the authorization of the
owner
term of patent
generally 20 years
markup over marginal cost
depends on price elasticity of demand and strength of the patent
monopoly pricing
patent provided very stron protection
incentive to innovate
Allocating strong property rights on knowledge and innovation
life of the patent
for how many years should the monopoly last?
- Stipulated by law
breadth of the patent
how different another product must be in order not to infringe?
- Under the control of the patent offices and courts
short and narrow patent
not provided enough incentive to invent
long and costly patent
too costly for the society
optimal solution for patent design
a longer protection that allows for limited competition, or a hard monopoly (broad patent) for a shorter time
nordhaus model
showed that an optimal patent must be of finite duration but strictly positive
gallini model
showed that broad and short patent are optima
maurer and scotchmer model
showed that a narrow but long patent is preferable
strategic patenting
a practice when patent applications are prosecuted with the goal of improving a portfolio’s patent position in a defined technological area
the optimal solution of patent protection depends on
the characteristics of the industry, demand conditions in a given market
