Intellectual Property, Innovation, and Decentralized Decisions
Innovation, Intellectual Property, and Economic Growth Lecture outline: Overview of course...
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Transcript of Innovation, Intellectual Property, and Economic Growth Lecture outline: Overview of course...
Innovation, Intellectual Property, and Economic Growth
Lecture outline:• Overview of course• Introduction to innovation
• Definitions• Nature of innovation• Microeconomics
• Questions• Readings
Overview of course
• Details of course• Teaching• Resources• Assessment
What is course about?• Applying economic analysis to the understanding of the
innovative process• Determinants• Consequences• Market failure (are optimal resources devoted to innovation)
• Some key questions• What drives innovation?• How does intellectual property influence innovation?• Which market structures yield more or better innovations?• Why are some countries rich and some poor?• Is economic regulation good or bad for innovation?
What is the ‘economics of innovation’?
Microeconomics – understanding processes, including how incentives affect firms
Macroeconomics – ‘innovation’ drives economic growth.. and economic growth drives living standards, environmental, political…
Economic Policy – are there market failures in the innovation process and what, if anything, should the government do?
Business Strategy – this is not a course on advising firms how to innovate, but does include some insight into this
Definition of innovation
Basic definitionIntroduction of new ideas that add ‘value’ to a firm’s activities
OECD The Oslo Manual (1997, p.28)• introduction of a new product or a qualitative change in an
existing product• process innovation new to an industry• the opening of a new market• development of new sources of supply for raw materials or
other inputs• changes in industrial organisation
Innovation and businessSome students may benefit from a brief comment on why innovation is so important to business
Some example of quotes
•"Business has only two functions, innovation and marketing." Peter F Drucker •“Creativity is thinking up new things. Innovation is doing new things.”Theodore Levitt (management guru) •Innovation distinguishes between a leader and a follower.“ Steve Jobs
The innovation process
ACTIVITIES
OUTPUTS
Basic research
DiscoveriesIdeas
Applied researchInformation collation
InventionsBlueprints
Plans
DevelopmentTesting
PrototypesBeta-versions
Investment
Innovation(product or process)
FIRM-LEVEL INITIATIVES
EXTERNAL-OR FIRM-LEVEL
INITIATIVES
MARKET-LEVELPROCESS
DIFFUSIONCOMMERCIALISATIONRESEARCH AND DEVELOPMENT
Adoption or purchase decision
Market penetration
AdaptationImprovement
STAGE
AGENTS
21 2 3 4 5
Figure 1.1 Greenhalgh and Rogers (2010)
Invention, Innovation, Diffusion(Schumpeterian trilogy)
• Invention: creation of an idea to do or make something (profitability not yet verified)
• Innovation: new product/ process commercially valuable i.e. successfully developed inventions.
• Diffusion: the spread of a new invention/innovation throughout society or at least throughout the relevant part of society.– Without this cannot gain full benefits– Some of this represents ‘spillovers’ or ‘positive
externalities’
Scientists, Knowledge and TechnologyScientists• Discover knowledge by research• Disseminate knowledge (open science?)• Knowledge is public good(non-rival in use), hence created
externalities• Universities, government labs, some large firms• It may represent the basis for technological advances
Technology • Application of knowledge to ‘production’• Firms driven by profit incentive• Private good: investment (R&D) projects, appropriate, use of
intellectual property
Product and process innovationsProduct innovations
• product used by consumers• Microwaves, computers, mobile phones, etc
• Products use by firms• Shipping containers, computers, robots, etc
Process innovations• Used by consumers
• Fast food, air travel
• Used by firms• Assembly lines, software
Defining an innovation• Can be defined as new to
– Firm– Market (industry)– World
• No universal agreement of which• Radical vs incremental
– Radical (steam, internal combustion engine, computers, internet)
– Incremental (constant improvements)– Both important in driving economic growth
Further ideas
• Can extend the introduction by considering– Further examples of specific innovations, including
cases studies of famous innovations– Look at country / state / city comparisons of
innovativeness– Can provide overview of productivity, economic
growth, etc
Microeconomic effects of innovation
• Following slides could be part of introduction or separate lecture– Can expand formality of this topic, including
introducing maths-based questions relating to consumer surplus changes, optimal subsidies, public goods
Figure 1.2 Process innovation in perfectly competitive market
Q1
P1
demand curve
Price (p)
quantity (Q)
Initial consumersurplus
P2
Q2
MC1=AC1
MC2=AC2
Figure 1.3 Process innovation for a monopoly
Q3
P3
demand curve
Price (p)
quantity (Q)
P4
Q4
MC1=AC1
MC2=AC2
marginal revenue (MR)
Figure 1.4 New product demand curve
new demand curve
Price (p)
quantity (Q)
P1
Q1
MC1=AC1
marginal revenue (MR)
Q*
a b
c d e
Figure 1.5 A product innovation represented by a shift in existing demand curve
Quantity (q)
Price (p)
MC=AC
qnew
Dnew
pnew
pold
qold
Dold
Innovations and Market Failure
• Innovation as a public good– Non-rival and non-excludable
• Externalities from innovative activity– R&D spillovers
• Indivisibilities, uncertainty, and capital markets– Fixed costs, uncertainties– Do capital markets cope with these?
• Patent races and duplication
Restoring incentives to invent and innovate
• Public provision of a public good• Club provision of a local public good• Pigovian subsidies• Definition of property rights• The trade-off between incentives and
monopoly power
Subsidies for R&D
Questions for discussion1. How would you distinguish between an invention and an
innovation?2. What are the key characteristics of a public good? Is all
new knowledge a public good? 3. What is a positive externality? How does this differ from
a public good?4. How does innovation create positive externalities? Why
are they a problem?5. What are the key market failures surrounding investment
in innovation?6. Does the creation of intellectual property rights help or
hinder the markets for innovative goods and processes?
References
• Key textbook for this course is– Greenhalgh, C and Rogers, M (2010) “Innovation,
Intellectual Property and Economic Growth”, Princeton University Press
• For this week read Chapter 1• Future lectures will follow each of the
chapters of the book• Additional articles will be given each week