Innovation Policy and the Economy.

The NBER's second annual Conference on Innovation Policy and the Economy, organized by Research Associates Adam Jaffe of Brandeis University, Joshua Lerner of Harvard Business School, and Faculty Research Fellow Scott Stern of MIT, took place in Washington on April 17. The following papers were discussed:

David S. Evans, National Economic Research Associates, and Richard Schmalensee, NBER and MIT, "Some Economic Aspects of Antitrust Analysis in New-Economy Industries"

Nancy Gallini, University of Toronto, and Suzanne Scotchmer, NBER and University of California, Berkeley," "Intellectual Property Rights: An Efficient Mechanism for Rewarding Innovation?"

Manuel Trajtenberg, NBER and Tel-Aviv University, "Government upport of Commercial R&D: Lessons from the Israeli Experience"

Timothy Bresnahan, NBER and Stanford University, "Prospects for an IT- Led Productivity Surge"

J. Bradford DeLong, NBER and University of California, Berkeley, "Do We Have a 'New' Macroeconomy?"

Competition in many important industries centers on investment in intellectual property. Evans and Schmalensee note that sound antitrust economic analysis of such industries involves explicit consideration of dynamic competition. Most leading firms in these dynamically competitive industries have considerable short-run market power, for instance, but may be vulnerable to drastic innovation. Similarly, conventional tests for predation cannot discriminate between practices that increase or decrease consumer welfare in winner-take-all industries. Finally, innovation in dynamically competitive industries often involves adding to the set of features a product provides or improving its existing features.

Intellectual property (IP) is not the American economy's only mechanism for rewarding R and D. Prizes and various types of contract research are also common. Given the controversies that swirl around policies regarding IP, in particular whether it is justified, Gallini and Scotchmer review the economic reasoning that supports patents (or other IP) over funding from general revenue. For those economic environments in which IP is justified, they review some of the arguments for why it is designed as it is, especially with regard to breadth of protection, and especially where innovation is cumulative. The patentee's ability to reorganize rights through licensing and other contractual arrangements should be taken into account in designing the property system, they conclude.

Israel's Rand...