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Innovation Policy and the Economy

The NBER's eighth annual Conference on Innovation Policy and the Economy took place in Washington on April 12. The conference was organized by NBER Research Associates Adam B. Jaffe of Brandeis University, Joshua Lerner of Harvard University, and Scott Stern of Northwestern University. The following papers were discussed:

Wesley M. Cohen, Duke University and NBER, and John P. Walsh, Georgia Institute of Technology, "Real Impediments to Academic Biomedical Research"

Robert E. Litan, Lesa Mitchell, and E.J. Reedy, Ewing Marion Kauffman Foundation, "Commercializing University Innovations: A Better Way"

Shane Greenstein, Northwestern University and NBER, "Economic Experiments and Industry Know-How in Internet Access Markets"

Carl Shapiro, University of California, Berkeley, "Patent Reform: Aligning Reward and Contribution"

Jean Tirole, Institut d'Economie Industrielle, Toulouse, and Joshua Lerner, "Public Policy toward Patent Pools"

Numerous scholars have expressed concern over the growing "privatization of the scientific commons" represented by the growth in academic patenting. However, even before the Bayh-Dole Act and the pervasive patenting of academic science, there was an earlier concern over the extent to which the drive for recognition among scientists and competition for priority and associated rewards also limited contributions to the scientific commons. This suggests the utility of a more open-ended consideration of the different factors--not just patenting--that might affect knowledge flows across scientists. Cohen and Walsh suggest, first, that one might distinguish between legal and practical excludability--and that practical excludability, at least in the world of academic research, may have little to do with patents. At the same time, however, they suggest that excludability may indeed be a real concern for academic, and particularly biomedical research, but to understand where and how it occurs, they need to look beyond patents to consider additional ways in which flows of knowledge and other inputs into research may be restricted (including secrecy and control over materials). They do find restrictions imposed on the flow of knowledge and material across biomedical researchers. While intellectual property plays some role, it is not determinative. They find that what matters are both academic and commercial incentives, and effective (that is, cost effective) excludability. This practical excludability is rarely associated with the existence of a patent in academic settings, but may be more readily imposed through secrecy or not sharing research materials.

Litan, Mitchell, and Reedy note that with the passage of the Bayh-Dole Act of 1980, the federal government explicitly endorsed the transfer of exclusive control over government-funded inventions to universities and businesses operating with federal contracts. While this legislation was intended to accelerate further development and commercialization of the ideas and inventions developed under federal contracts, the government did not provide any strategy, process, tools, or resources to shepherd innovations from the halls of academia into the commercial market. And more than 25 years later, it is clear that few universities have established an overall strategy to foster innovation, commercialization, and spillovers. Multiple pathways for university innovation exist and can be codified to provide broader access to innovation, allow a greater volume of deal flow, support standardization, and decrease the redundancy of innovation and the cycle time for commercialization. Technology Transfer Offices (TTOs) were envisioned as gateways to facilitate the flow of innovation but instead have become gatekeepers, in many cases constraining the flow of inventions and frustrating faculty, entrepreneurs, and industry. The authors discuss potential changes focused on creating incentives that will maximize social benefit from the existing investments being made in R&D and commercialization on university campuses.

Innovation within Internet access markets can be usefully understood through the lens of economic experiments. Economic experiments yield lessons to market participants through market experience. Greenstein distinguishes between directed and undirected economic experiments and discusses how the spreading of lessons transforms a market. As a lesson becomes common, it becomes a part of industry know-how. Further innovations build on that know how, renewing a cycle of experimentation. Greenstein ends with insights about why some market institutions encourage economic experiments and what policy can do to nurture a positive outcome.

Economists and policymakers have long recognized that innovators must be able to appropriate a reasonable portion of the social benefits of their innovations if innovation is to be suitably rewarded and encouraged. However, Shapiro identifies a number of specific fact patterns under which the current U.S. patent system allows patent holders to capture private rewards that exceed their social contributions. Such excessive patentee rewards are socially costly, since they raise the deadweight loss associated with the patent system and discourage innovation by others. Economic efficiency is promoted if rewards to patent holders are aligned with and do not exceed their social contributions. He analyzes two major reforms to the patent system designed to spur innovation by better aligning the rewards and contributions of patent holders: establishing an independent invention defense in patent infringement cases, and strengthening the procedures by which patents are re-examined after they are issued. Three additional reforms relating to patent litigation are also studied: limiting the use of injunctions, clarifying the way in which "reasonable royalties" are calculated, and narrowing the definition of "willful infringement."

The past two decades have seen an explosion of patent awards and litigation across a wide variety of technologies, which numerous commentators have suggested has socially detrimental consequences. Patent pools, in which owners of intellectual property share patent rights with each other and third parties, have been proposed as a way in which firms can address this "patent thicket" problem. Lerner and Tirole discuss the current regulatory treatment of patent pools and highlight why a more nuanced view than focusing on the extreme cases of perfect complements and perfect substitutes is needed. They also highlight the importance of regulators' stances toward independent licensing, grantback policies, and royalty control. Finally, they present case study and large-sample empirical evidence.

These papers will appear in an annual volume published by the MIT Press. Its availability will be announced in a future issue of the Reporter. They can also be found at "Books in Progress" on the NBER's website.

An Economic Perspective on the Problems of Disadvantaged Youth

An NBER Conference on "An Economic Perspective on the Problems of Disadvantaged Youth," organized by Jonathan Gruber of NBER and MIT, was held on April 13-14, 2007. The conference was funded by the Annie E. Casey Foundation. The following papers were presented and discussed:

David Figlio, University of Florida and NBER, and Jeffrey Roth, University of Florida, "The Behavioral Consequences of Pre-Kindergarten Participation for Disadvantaged Youth"

Discussant: Elizabeth Cascio, Dartmouth College and NBER

Melissa Kearney, Brookings Institution and NBER, and Phillip Levine, Wellesley College and NBER, "Socioeconomic Disadvantage and Early Childbearing"

Discussant: Sandra Black, University of California, Los Angeles and NBER

Julie Berry Cullen, University of California, San Diego and NBER, and Brian Jacob, Harvard University and NBER, "Is Gaining Access to Selective Elementary Schools Gaining Ground? Evidence from Randomized Lotteries"

Discussant: Jacob Vigdor, Duke University and NBER

Philip Oreopoulos, University of Toronto and NBER, "Would More Compulsory Schooling Help Disadvantaged Youth? Evidence from Recent Changes to School-Leaving Laws"

Discussant: Susan Dynarski, Harvard University and NBER

Janet Currie, Columbia University and NBER, and Mark Stabile, University of Toronto and NBER, "Mental Health in Childhood and Human Capital"

Discussant: Jane Waldfogel, Columbia University

Patricia Anderson, Dartmouth College and NBER, Kristin Butcher, Federal Reserve Bank of Chicago, and Diane Schanzenbach, University of Chicago, "Childhood Disadvantage and Obesity: Is Nurture Trumping Nature?"

Discussant: John Cawley, Cornell University and NBER

Marianne Page and Ann Huff Stevens, University of California, Davis and NBER, and Jason Lindo, University of California, Davis, "Parental Income Shocks and Outcomes of Disadvantaged Youth in the United States"

Discussant: Bruce Meyer, University of Chicago and NBER

Rajeev Dehejia, Tufts University and NBER; Thomas DeLeire, Michigan State University; Erzo Luttmer, Harvard University and NBER; and Joshua Mitchell, Harvard University, "The Role of Religious and Social Organizations in the Lives of Disadvantaged Youth"

Discussant: Daniel Hungerman, University of Notre Dame and NBER

Anna Aizer, Brown University and NBER, "Neighborhood Violence and Urban Youth"

Discussant: Jens Ludwig, Georgetown University and NBER

Figlio and Roth investigate the effects of public pre-kindergarten par ticipation on the subsequent behavioral outcomes of disadvantaged youth. They use a unique longitudinal dataset that links student birth records to pre-kindergarten participation for every child born in Florida on or after 1994 who subsequently attended public school in Florida. They find that children whose neighborhood-zoned elementary school offers a pre-kindergarten program are more likely to attend. Further, differences persist within families whose local schools add or drop programs. Specifically...

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