Innovation policy and the economy.

• Position: Conferences

The NBER's seventh annual Conference on Innovation Policy and the Economy took place in Washington on April 19. 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:

Iain M. Cockburn, Boston University and NBER, "Is the Pharmaceutical Industry in a Productivity Crisis?"

Fiona Murray, MIT, and Scott Stern, Northwestern University and NBER, "When Ideas Are Not Free: The Impact of Patents on Scientific Research"

Paula Stephan, Georgia State University, "Wrapping it up in a Person: The Mobility Patterns of New PhDs"

Erik Brynjolfsson and Xiaoquan (Michael) Zhang, MIT, "Innovation Incentives for Information Goods"

Daniel Diermeier, Wallace J. Hopp, and Seyed Iravani, Northwestern University, "Innovating under Pressure--Towards a Science of Crisis Management"

Rising R and D expenditures and falling counts of new drug approvals since 1996 have led many observers to conclude that there has been a sharp decline in research productivity in the pharmaceutical industry over the past decade. But a close look at the underlying data, Cockburn suggests, shows that these trends are greatly exaggerated: properly measured, research output is unlikely to have fallen as much as these figures imply, while trends in R and D expenditure are seriously overstated by failing to account for inflation in R and D input costs. Some of the increase in R and D investment is a necessary, indeed welcome, response to new technological opportunities and can be expected to deliver a handsome return of innovative drugs in future years. The rising cost per new drug approved is nonetheless a serious cause for concern, particularly where this is driven by transactions costs and other inefficiencies in the market for basic research, and by late-stage abandonment of drug development projects on purely economic grounds. Policies that make "small" markets more attractive, build capacity in translational medicine, reduce the cost, time, and uncertainty of regulatory review, maximize access to basic research, and encourage greater cooperation and collaborative research within the industry can all contribute to greater R and D efficiency.

Murray and Stern describe the impact of formal intellectual property rights (IPR) on the production and diffusion of "dual knowledge"--ideas that are simultaneously of value as a scientific...