grand innovation prizes a theoretical normative and empirical evaluation abstract this paper provides a systematic examination of the use of a grand innovation prize gip in action the progressive automotive insurance x prize a 10 million prize for a highly efficient vehicle following a mechanism design approach we define three key dimensions for gip evaluation objectives design and performance where prize design includes ex ante specifications ex ante incentives qualification rules and award governance within this framework we compare observations of gips from three domains empirical reality theory and policy to better understand their function as an incentive mechanism for encouraging new solutions to large scale social challenges combining data from direct observation personal interviews and surveys together with analysis of extant theory and policy documents on gips our results highlight three points of divergence first over the complexity of defining prize specifications secondly over the nature and role of incentives particularly patents thirdly the overlooked challenges associated with prize governance our approach identifies a clear roadmap for future theory and policy around gips

the economics of a blend mandate for biofuels a biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices depending on relative supply elasticities biofuel tax credits always reduce fuel prices tax credits result in lower fuel prices than under a mandate for the same level of biofuel production if tax credits are implemented alongside mandates then tax credits subsidize fuel consumption instead of biofuels this contradicts energy policy goals by increasing oil dependency co 2 emissions and traffic congestion while providing little benefit to either corn or ethanol producers these social costs will be substantial with tax credits costing taxpayers 28 7 billion annually by 2022 copyright 2008 oxford university press

patents or prizes monopolistic r d and asymmetric information abstract in this paper a model of r d regulation is analysed to compare the effect of two types of asymmetric information on the welfare properties of patents and prizes as r d incentive instruments when there is a technological leader using the case of full information as a benchmark it is found that the trade off between patents and prizes does not change if the innovator s r d costs are private information whereas the relative efficiency of patents decreases if the government is less informed about the market for the innovation

how to best ensure remuneration for creators in the market for music copyright and its alternatives the focus of this essay is to examine the market for copyrighted works with a particular emphasis on the sound recording market this market is currently in a state of flux some would say disarray due to the ability of the internet to lower transmission costs for both authorized and unauthorized copies with the latter being at this time far more prevalent in this essay we discuss the intent of copyright the role of copying and file sharing and some alternative production consumption schemes meant to strengthen or to replace copyright

gibrat s law for all cities reply this reply refutes the objection raised by levy 2009 about the fit of the upper tail of the city size distribution in eeckhout 2004 i show that the method on which his conclusion is based is unsubstantiated the visual interpretation of the fit on log log plots is misleading in addition the methodology used to estimate a truncated subsample of the distribution while testing its significance against a distribution with prespecified parameters is ill founded the main conclusion is that gibrat s law holds city sizes follow proportionate growth thus giving rise to a lognormal size distribution tail included jel r11 r12 r23

the evolution of the industrial organisation of the production of knowledge this work elaborates the notion of localised technological knowledge based upon the distinction between information competence and knowledge and analyses the emergence of the new knowledge industry the evolution of the organisation of knowledge production is analysed through four stylised modes scientific entrepreneurship institutional variety vertical integration and technological cooperation the new trends towards the growth of knowledge intensive business service industries are detected and underlined they are considered as the outcome of the institutional formation of a market for knowledge based upon a process of increasing appropriability of localised knowledge based on the blending of generic scientific information and competence and growing scope of applicability via computercommunication systems deverticalisation of research activities from the boundaries of corporations the specification of a demand for technological competence and the specialising of independent firms in the production of technological competence and knowledge

economic growth in a cross section of cities abstract we examine the relationship between urban characteristics in 1960 and urban growth between 1960 and 1990 income and population growth move together and both types of growth are 1 positively related to initial schooling 2 negatively related to initial unemployment and 3 negatively related to the initial share of employment in manufacturing racial composition and segregation are uncorrelated with urban growth across all cities but in cities with large nonwhite communities segregation is positively correlated with population growth government expenditures except for sanitation are uncorrelated with growth government debt is positively correlated with later growth

efficient division of profits from complementary innovations abstract many products including microprocessors telecommunications devices computer software and on line auction services make use of multiple technologies each of which is essential to make or sell the product the owner of one technology benefits from the existence of complementary technologies we show that despite this externality the structure of payoffs that support efficient r d investment by duopolists racing to discover a single innovation generalizes to the structure that supports efficient investment for complementary innovations the paper also examines how alternative intellectual property regimes and legal institutions affect r d investment in complementary technologies the results have policy implications for the organization of r d the assessment of damages for patent infringement and allocations of value in patent pools

patents versus ex post rewards a new look abstract economic studies that aim at comparing the patent system social efficiency versus an ex post reward system rest on an outdated view of patents they assume that firms use the patent system only in order to be granted a short term commercial monopoly rent this assumption is convenient because it allows straightforward comparisons between patents and rewards but it is not confirmed by empirical studies which stress that in many industries most firms use patents as strategic devices to trade technologies and to ease r d collaborations this change leads to rethinking the framework of the patent reward debate

how do competitive pressures affect incentives to innovate when there is a market for inventions competition and intellectual property ip protections are complements in stimulating innovation when ip is appropriable a market for inventions forms and competitive pressures increase incentives to innovate competition among producers the demand side of the market for inventions and competition among inventors the supply side of the market for inventions create incentives to innovate when ip is not fully appropriable markets for inventions are limited and competitive pressures can decrease incentives to innovate firms vertically integrate r d and production and share technology to appropriate the returns to ip this implies that antitrust policy and ip protections are complements

do the world s largest cities follow zipf s and gibrat s laws we examine whether the size distribution and the growth process of the world s largest cities follow zipf s law and gibrat s law the parametric results of the size distribution analysis reject zipf s law for all sample sizes and also show the zipf exponent systematically declines as the sample size increases the growth process analysis confirms gibrat s law and yields a local zipf exponent of one for cities with a normalized population less than 0 53 which includes about 95 of the total observations the deviations from zipf s law occur at the extreme upper tail and are likely a result of restricted mobility of population across countries however given that gibrat s law holds we can expect the size distribution to converge to zipf s law with a decline in the barriers to immigration

estimating the effects of global patent protection in pharmaceuticals a case study of quinolones in india under the trips agreement wto members are required to enforce product patents for pharmaceuticals the debate about the merits of this requirement has been extremely contentious many low income economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines with adverse consequences for the health and well being of their citizens on the other hand research based global pharmaceutical companies argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes in this paper we empirically investigate the basis of these claims central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where because health insurance coverage is so rare almost all medical expense are met out of pocket using a detailed product level data set from india we estimate key price and expenditure elasticities and supply side parameters for the fluoroquinolones sub segment of the systemic anti bacterials i e antibiotics segment of the indian pharmaceuticals market we then use these estimates to carry out counterfactual simulations of what prices profits and consumer welfare would have been had the fluoroquinolone molecules we study been under patent in india as they were in the u s at the time our results suggest that concerns about the potential adverse welfare effects of trips may have some basis we estimate that in the absence of any price regulation or compulsory licensing the total annual welfare losses to the indian economy from the withdrawal of the four domestic product groups in the fluoroquinolone sub segment would be on the order of u s 450 million or about 73 of the sales of the entire systemic anti bacterials segment in 2000 of this amount foregone profits of domestic producers constitute roughly 50 million or 11 the overwhelming portion of the total welfare loss therefore derives from the loss of consumer welfare in contrast the profit gains to foreign producers in the absence of any price regulation are estimated to be only around 53 million per year

gibrat s law for all cities comment jan eeckhout 2004 reports that the empirical city size distribution is lognormal consistent with gibrat s law we show that for the top 0 6 percent of the largest cities the empirical distribution is dramatically different from the lognormal and follows a power law this top part is extremely important as it accounts for more than 23 percent of the population the empirical hybrid lognormal power law distribution revealed may be characteristic of other key distributions such as the wealth distribution and the income distribution this distribution is not consistent with a simple gibrat proportionate effect process and its origin presents a puzzle yet to be answered jel r11 r12 r23

causes of sprawl a portrait from space we study the extent to which u s urban development is sprawling and what determines differences in sprawl across space using remote sensing data to track the evolution of land use on a grid of 8 7 billion 30 30 meter cells we measure sprawl as the amount of undeveloped land surrounding an average urban dwelling the extent of sprawl remained roughly unchanged between 1976 and 1992 although it varied dramatically across metropolitan areas ground water availability temperate climate rugged terrain decentralized employment early public transport infrastructure uncertainty about metropolitan growth and unincorporated land in the urban fringe all increase sprawl

power laws in economics an introduction paul samuelson 1969 was once asked by a physicist for a law in economics that was both nontrivial and true this is a difficult challenge as many roughly true results are in the end rather trivial for example demand curves slope down while many nontrivial results in economics in fact require too much sophistication and rationality on the part of the agents to actually hold true in practice 1 samuelson answered the law of comparative advantage the story does not say whether the physicist was satisfied the law of comparative advantage is a qualitative law and not a quantitative one as is the rule in physics indeed many of the insights of economics seem to be qualitative with many fewer reliable

pollution permits and environmental innovation abstract this paper starts with a warning about the negative impact of plain pollution allowance markets on environmental pollution innovation stand alone spot markets enable the government to expropriate an innovation by offering a competing technology pollution permits that puts an arbitrary downward pressure on the licensing price advance allowances reduce expropriation but still create suboptimal incentives for innovation they have the further drawback that permits are inefficiently used when the innovation occurs options to pollute at a given striking price fare better than allowances because they create private incentives to phase out pollution in the case of innovation we characterize the social optimum and show that it can be implemented by issuing options to pollute inter alia finally the paper compares ex ante and ex post government procurement surprisingly ex post licensing by the innovator to the government may yield a higher licensing fee than an ex ante contract

innovation policy for directing technical change in the power sector this paper discusses policy instruments for redirecting technical change within the electricity sector to mitigate climate change first we unravel the mechanism behind directed technical change explaining why markets may underprovide innovations in expensive renewable technologies in comparison to innovations in energy efficient fossil fuel generators subsequently we characterize technical change in electricity generation technologies stressing the heterogeneity of knowledge spillovers both within and between clean electricity generation technologies we argue that there exists a rationale for a portfolio approach to innovation in the electricity sector i e optimal innovation policies are neither fully generic nor fully specific and they need to be adapted in response to new information learned by the government the existing innovation literature does not however provide a clear cut answer for designing such a policy we compare policy instruments and argue that public r d support to clean technologies either in the form of subsidies or prizes seems to be the prime candidate for implementing non generic innovation policy

gibrat s law for all cities two empirical regularities concerning the size distribution of cities have repeatedly been established zipf s law holds the upper tail is pareto and city growth is proportionate census 2000 data are used covering the entire size distribution not just the upper tail the nontruncated distribution is shown to be lognormal rather than pareto this provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution an equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed the driving force is a random productivity process of local economies and the perfect mobility of workers

encouraging private sector research for tropical agriculture summary agricultural needs in poor tropical countries differ significantly from those in temperate rich countries yet little agricultural research is performed on products for the tropics private research is particularly concentrated in rich countries this is a result of significant failures in the market for research and development r d in particular the difficulty of preventing the resale of seed in developing countries to encourage private r d in tropical agriculture traditional funding of research may be usefully supplemented by a commitment to reward developers of specific new agricultural technologies rewards tied to adoption may be especially useful in increasing up take an illustration of how a commitment to reward developers of new agricultural technologies might work is provided

central place theory and city size distribution this paper proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process it does so by formalizing central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law central place theory describes the way in which a hierarchical city system with difierent layers of cities serving difierently sized market areas is formed from a uniformly populated space the force driving the city size difierences in this model is the heterogeneity in economies of scale across goods the city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying which is a general class that encompasses many well known commonly used distributions this model is also consistent with a power law for flrms and a number average size rule which is the log linear relationship between the number and average size of the cities in which an industry is located

instrument choice for environmental protection when technological innovation is endogenous this paper compares qualitatively and quantitatively the welfare effects of emissions taxes auctioned emissions permits and free grandfathered permits when technological innovation is endogenous we find that there is no unambiguous case for preferring any of these policy instruments the relative welfare ranking of instruments depends on the costs of innovation the extent to which innovations can be imitated the slope and level of the marginal environmental benefit function and the number of polluting firms we illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not

the economics of invention incentives patents prizes and research contracts though public intervention in the market for research is virtually universal economists have paid surprisingly little attention to the choice of the form of research incentive in a given market structure many studies concentrate on patents but any assumption of their superiority over other incentives has been founded on intuition rather than on formal analysis in this paper i analyze the choice between three of the most common alternative means of public intervention in the research market namely patents prizes and direct contracting for research services i show why and under what conditions any one of the three may be preferred by a social welfare maximizing administrator in a competitive economy using a model that for the first time pays explicit attention to differences in the informational roles of each of these alternatives in the extensive literature on the economics of patents see arnold plant 1934 fritz machlup 1958 charles taylor and z a silberston 1973 morton kamien and nancy schwartz 1975 and f m scherer 1977 for valuable surveys formal analysis weighs the benefits of patents as a solution to the market failure associated with the inappropriability of knowledge against the welfare cost due to the restriction on the use of the knowledge generated and this tradeoff is optimized by patent life adjustment in william nordhaus 1969 scant analytical attention is paid to alternative incentive mechanisms an exception is ben yu 1981 who considers the role of prior contracting for inventions but as many writers for example dan usher 1964 yoram barzel 1968 joseph stiglitz 1969 carole kitti 1973 glenn loury 1979 partha dasgupta and stiglitz 1980a have pointed out in various contexts the incentive offered by an unlimited patent to competitive researchers may be excessive due to the common pool problem discussed further in section i below if the patent administrator and researchers share the same information as implicitly assumed in previous models then the patent life limitation can be adjusted to provide the optimal patent incentive given the common pool problem but in all such models patents would not be chosen in a fully optimized fiscal system researchers and the administrator are assumed to have identical information about the shadow price of potential inventions a patent is just a means of turning this shadow price into a monetary reward but monetary compensation can instead be offered directly to researchers by the state assuming that patent revenues incur a higher deadweight loss than an equivalent amount of public funds financed by less distortionary means for example a minimally efficient tax system appropriate prizes or government contracts are socially preferable to patents with optimal lives if the patent is ever to be the optimal incentive mechanism for research it must possess advantages not captured in existing models informal discussions of patents emphasize their informational role to include the latter as a justification for decentralized invention incentives i incorporate an ex ante imbalance of information about costs and benefits of research in the model presented in section ii but this alone is not quite enough it is further necessary to specify that the terms of the award must be fixed before department of economics economic growth center box 1987 yale station yale university new haven ct 06520 i thank with the usual caveat marguerite alejandro wright cindy arfken martin baily nuong brennan steven englander robert evenson richard levin richard nelson susan rose ackerman denis wright and two referees for assistance of various kinds

pro poor agricultural biotechnology can the international research system deliver the goods abstract while global investment in agricultural research by the private sector is increasing with growth in developing country markets and the emergence of new technologies complementary public sector investment is stagnating or declining in many developing countries this review argues that the changing roles of the public and private sectors in generating new scientific knowledge may adversely affect the diffusion of explicitly pro poor technologies technologies that are simultaneously yield enhancing and poverty reducing comparing historical evidence from the green revolution with recent evidence from the emerging era of agricultural biotechnology this review argues that a more pluralistic international system for agricultural research will be more responsive to poverty only if the strategic leadership role of the public sector is strengthened certain research functions are reallocated to the private sector and new policy and organizational mechanisms are used to stimulate pro poor research in and for developing country agriculture

macroeconomic implications of agglomeration cities exist because of the productivity gains that arise from clustering production and workers a process called agglomeration how important is agglomeration for aggregate growth this paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the effect of local agglomeration on aggregate growth we combine aggregate time series and city level panel data to estimate the model s parameters via generalized method of moments the estimates imply a statistically and economically significant impact of local agglomeration on the growth rate of per capita consumption raising it by about 10

finance and growth in africa the broken link abstract while bank liabilities in sub saharan africa are found to follow but not lead economic growth the link between bank credit and growth is altogether absent

patents and other intellectual property rights in this article the author reviews intellectual property rights iprs with some emphasis on the protection of agricultural and life sciences innovations the main institutional features of iprs are first discussed along with a brief historical background and an articulation of the main rationale for the existence of such rights this is followed by an overview of the principal economic issues related to iprs the author explains the main benefit cost trade offs of allowing patents and other iprs and then analyzes specific issues in some depth including the scope of patent protection the effects of patent races and the problems arising when iprs concern cumulative and or complementary innovations the author further illustrates the economics of iprs by considering instruments alternative to patents such as prizes and government procurement contracts finally the author briefly discusses some open policy issues in this area

inducement prizes and innovation we examine the effect of prizes on innovation using data on awards for technological development offered by the royal agricultural society of england at annual competitions between 1839 and 1939 we find large effects of the prizes on competitive entry and we also detect an impact on patents especially when prize categories were set by a strict rotation scheme thereby mitigating the potentially confounding effect that they targeted only hot technology sectors prizes encouraged competition and medals were more important than monetary awards the boost to innovation we observe cannot be explained by the re direction of existing inventive activity

insurance and incentives for innovation in medical care economists have frequently pointed to the distorting effects of health insurance as a major contributor to rapidly increasing health costs relatively little is known however about the influence of changing medical technology on expenditures if increases in expenditures are in part the result of development of costly but worthwhile new technologies a common view among noneconomists failure to take account of this may lead to over statement of the distortive effects of insurance on the other hand some observers have questioned whether the benefits derived from expensive medical innovations always exceed the costs 18 others have suggested that resources devoted to the development of very expensive technologies might be better used for other kinds of medical research 16 3 in light of these arguments it appears that the relationships between medical insurance and technological change may be quite important if the extent of insurance coverage influences the rate and direction of technological change in medicine then the long run welfare effects of insurance are more complex than current models 5 6 allow it is sometimes argued informally that such an influence existsthat the presence of insurance biases the system toward innovations that expand capabilities while increasing expenditures and away from those that reduce costs 15 20 such a hypothesis has however never been developed as an implication of a formal economic model even the term bias in the argument is unclear it appears to be used in a normative sense but it has not been explained clearly why such a bias if it exists leads to welfare losses even if it is true for example that the presence of insurance leads to the adoption of a more costly mix of medical innovations than would otherwise occur this is not obviously undesirable to facilitate the purchase of costly but beneficial medical care is the purpose of insurance this paper defines bias in technological change in a normative sense it employs a simple model of insurance and profit maximizing innovators and develops sufficient

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

second best biofuel policies and the welfare effects of quantity mandates and subsidies abstract the quest for biorenewable energy sources is held to justify a number of government interventions including support policies for biofuels such as those responsible for the recent rapid growth of us ethanol production this article provides an analytical assessment of such policies we construct a general equilibrium open economy model that captures the rationale typically invoked to justify government intervention in this setting to alleviate the environmental impact of energy consumption and to decrease us energy dependence on foreign sources the model is used to study both the positive and normative implications of alternative policy instruments including the subsidies and mandates specified by the 2007 energy independence and security act from a positive perspective we find that biofuels mandates are equivalent to a combination of fuel taxes and biofuels subsidies that are revenue neutral from a welfare perspective we show that biofuels mandates dominate biofuels subsidies and that combining fuel taxes with mandates would be welfare enhancing

technology transfer under asymmetric information licensing contracts for newly patented innovations are observed to vary along several dimensions including the form and size of the payment to the inventor fixedfee versus some output based royalty the degree of exclusivity and the division of rents in this article we show that theform of the contract can be explained by two problems in technology exchange the superiority of a licensor s precontractual information about the economic value of the innovation and thefact that sharing this information with the licensee mayfacilitate imitation we show that a licensor signals her technology type with an output based payment or royalty and may leave some of the rents with the licensee conditions under which exclusive license contracts linear and nonlinear and nonexclusive linear contracts are used to transfer technology are identified

the multinational corporation and monopoly of patents in nigeria abstract this paper examines the effects of foreign monopoly of patents grants in nigeria and the implications for technology development in that country the findings show that multinational corporations mncs own an overwhelming proportion of the patent grants in nigeria and that the nigerian patent system does not positively encourage domestic inventiveness in fact apart from attracting foreign patents in large numbers the nigerian patent system has failed to achieve all the other objectives including the disclosure of patented knowledge and working of patented invention which are explicitly stated in the decree that established the system in 1970 consequently the ultimate objective of the system which is the enhancement of technological development in the country seems centuries away from realization this is attributed to the combined effect of three factors the monopolist practices including restrictive practices of the mncs the abject inefficiencies of the patent system itself and the nature and lack of political willpower of the government of nigeria the paper concludes that the failure of the nigerian government to make advantageous use of the patent system is the greatest handicap

emissions pricing spillovers and public investment in environmentally friendly technologies in a second best world of below optimal pollution pricing the public return to r d may be greater than under pigouvian pricing due to excess benefits of increasing abatement or it may be lower since private actors lack the incentives to take full advantage of the new cleaner technologies this paper uses a simple model to demonstrate the interaction between environmental policies r d externalities and the social return to innovation the results indicate that strong public support for innovation in abatement technologies is only justified if at least a moderate emissions policy is in place and spillover effects are significant if emissions policy can adjust to cost changes the public role may be enhanced since private actors will prefer to avoid ratcheting social gains from innovation increase only if innovation can allow emissions to be more fully priced technology policy is more effective with fuller emissions pricing and is better viewed as a complement to than a substitute for mitigation policy

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

asymmetric price adjustments in us gasoline markets impacts of spatial dependence on the rockets and feathers hypothesis gasoline retail prices show sometimes wild asymmetric fluctuations over time we explore the impact of spatial dependence on gasoline retail price formation by using for the first time an asymmetr

recovering the finance growth nexus abstract we show that the finance growth nexus can be recovered by using quality adjusted measures of financial development specifically we utilize three world bank financial fragility indicators the z score a measure of liquidity and a measure of impaired loans to construct quality adjusted measures of private credit to gdp our findings suggest that the finance growth nexus is alive and kicking as long as banks use sound lending practices to prevent the buildup of non performing loans we also show that our results hold in sub saharan africa a region where the finance growth nexus could potentially make a big difference

mandates and the incentive for environmental innovation mandates which establish minimum use quotas for certain goods are becoming increasingly popular policy tools to promote renewable energy use in addition to mitigating the pollution externality of conventional energy clean energy mandates have the goal of promoting research and development r d investments in renewable energy technology but how well do mandates perform as innovation incentives to address this question we develop a partial equilibrium model to examine the r d incentives induced by a mandate and compare this policy to two benchmark situations laissez faire and a carbon tax innovation is stochastic and the model permits an endogenous number of multiple innovators we present both analytical results and conclusions based on numerical simulations we find that the optimal mandate is larger than it would be without the prospect of innovation that neglecting the outlook for innovation significantly reduces welfare and that the optimal mandate is more sensitive to assumptions about the innovation process than an optimal carbon tax furthermore we find that mandates create relatively strong incentives for r d investment in low quality innovations but relatively weak incentives to invest in high quality innovations we also rank policies by expected welfare an optimal carbon tax has higher expected welfare than an optimal mandate and both have higher expected welfare than laissez faire moreover in our endogenous innovation setting a stronger result obtains a simple carbon tax equal to the damage from pollution unadjusted for the prospect of innovation has higher expected welfare than an optimal mandate

the optimal patent term under uncertainty this paper investigates the impact of uncertainty and risk aversion on the optimal patent term two types of uncertainty are discussed uncertainty over the size of cost reduction and uncertainty about the output demand of the invention using industry with cost reduction uncertainty and risk neutral inventors the optimal patent term will be shorter than in the certainty case risk aversion increases the optimal patent life vis a vis risk neutrality

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

the area and population of cities new insights from a different perspective on cities the distribution of city populations has attracted much attention in part because it constrains models of local growth however there is no consensus on the distribution below the very upper tail because available data need to rely on legal rather than economic definitions for medium and small cities to remedy this difficulty we construct cities from the bottom up by clustering populated areas obtained from high resolution data we find that zipf s law for population holds for cities as small as 5 000 inhabitants in great britain and 12 000 inhabitants in the us we also find a zipf s law for areas jel r11 r12 r23

on the optimality of the patent renewal system the patent system is mainly a renewal system the patent life is chosen by the patentee in return for fees i ask whether such a system can be justified by asymmetric information on costs and benefits of research in such a model i show that renewal mechanisms possibly with subsidies are equivalent to direct revelation mechanisms and therefore cannot be improved on regardless of the objective function under plausible circumstances patents should have a uniform life rather than varying in length as typically occurs under a renewal system

a nonparametric analysis of the growth process of indian cities we examine the growth process of the largest cities in india for the post economic reform period 1991 2011 to analyze gibrat s and zipf s laws by applying nonparametric estimation the results from stochastic kernel contour plots and expected growth rate and variance conditional on city size establish that gibrat s law holds for largest cities in india i e city growth is independent of population size and the local zipf exponent is around one and stable gibrat s law is also confirmed by the parametric regression of the aggregate relationship of the growth rate on city size

a theory of grand innovation prizes abstract the past decade has witnessed a resurgence in innovation awards in particular of grand innovation prizes gips which are rewards to innovators developing technologies reaching performance goals and requiring breakthrough solutions gips typically do not preclude the winner also obtaining patent rights this is in stark contrast with mainstream economics of innovation theories where prizes and patents are substitute ways to generate revenue and encourage innovation building on the management of innovation literature which stresses the difficulty to specify ex ante all the technical features of the winning technologies we develop a model in which innovative effort is multi dimensional and only a subset of innovation tasks can be measured and contracted upon we show that in this environment patent rights and cash rewards are complements and that gips are often preferable to patent races or prizes requiring technologies to be placed in the public domain moreover our model uncovers a tendency for patent races to encourage speed of discovery over quality of innovation which can be corrected by gips we explore robustness to endogenous entry costly public funds and incomplete information by gip organizers on the surplus created by the technology

patents and patent policy a patent is the legal right of an inventor to exclude others from making or using a particular invention this right is sometimes termed an intellectual property right and is viewed as an incentive for innovation this article surveys the evidence on patent effectiveness in encouraging innovation and reviews the current controversies in patent policy

pools and streams a stochastic process model of applied research abstract applied research is often viewed as a process of testing ideas drawn from a pool of candidate innovations this model is formalized for the case in which the pool of ideas is continually replenished through basic research the intensity of applied research is determined by the equilibrium of an n person non cooperative game where players choose dynamic strategies for exploiting the pool the presence of a pool cannot be detected in a stationary state but when the number of applied researchers is finite transient responses to exogenous shifts in basic research policy may reveal the pool s existence

mobile money financial inclusion and development a review with reference to african experience we survey literature on mobile money and its contribution in promoting financial inclusion and development with a focus on sub saharan africa we use taxonomic descriptive and analytical methods to evaluate the state of knowledge in the area we analyse how mobile technology in general may contribute to economic development and financial inclusion in theory and practise we explain the mechanics of mobile money using kenya s m pesa as a canonical example and consider whether the literature has fully established the potential economic impact of mobile money especially its contribution to financial inclusion we also consider market structure pricing and regulatory implications of mobile money we conclude by highlighting issues that require further investigation the take up of mobile money mobile money and financial inclusion substitutability between mobile money and conventional finance and regulatory structures for institutions providing mobile money services

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

hybrid innovation in meiji japan japan s hybrid innovation system during the meiji era provides a useful laboratory for examining the effectiveness of complementary incentives to patents patents were introduced in 1885 and by 1911 1 2 million mostly nonpecuniary prizes were awarded at 8 503 competitions prizes provided a strong boost to patents especially in less developed prefectures and they also induced large spillovers of technical knowledge in prefectures adjacent to those with prizes relative to distant control prefectures without prizes linking competition expenditures with the expected market value of patents induced by the prizes permits a cost benefit assessment of the prize competitions to be made

the incentive subsidy for government support of private r d abstract an incentive subsidy policy for subsidizing private rd in addition the firm receives a small fraction of the resulting invention s social value this mechanism comes close to being perfectly incentive compatible the firm chooses itself whether it wants to be covered under the incentive subsidy generally the firm s choice coincides with three social aims first a project that the firm would conduct in any case should not be subsidized second a project should not be subsidized if its social value is negative third the subsidy should provide an incentive to maximize a project s social value using a simulation over a range of hypothetical research projects it is shown that the efficiency of conditional loans and normal grants declines drastically as the government s information about project parameters becomes poorer while the incentive subsidy performs consistently well

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

market power screens willingness to pay what is the best way to reward innovation while prizes avoid deadweight loss intellectual property selects high social surplus projects optimal innovation policy thus trades off the ex ante screening benefit and the ex post distortion it solves a multidimensional screening problem in the private information held by the innovator research cost quality and market size of the innovation the appropriate degree of market power is never full monopoly pricing and is determined by measurable market characteristics the inequality and elasticity of innovation supply making the analysis open to empirical calibration the framework has applications beyond ip policy to the optimal pricing of platforms or the optimal procurement of public infrastructure

alfred marshall lecture intellectual property rights protection in developing countries the case of pharmaceuticals patent enforcement in developing countries generates considerable controversy especially when patents involve potentially life saving drugs this paper argues that common concerns regarding the effects of patents on prices and on research incentives of pharmaceutical multinationals are misplaced rather the most significant effects are likely to concern access to patented drugs in poor countries because prices in developing countries are much lower than in the developed world multinationals may choose to enter such markets with a delay or not at all implying a complete loss of access to patented drugs in developing countries even when multinationals enter countries like india their marketing and distribution networks are not currently built out leading to limited access within the country such considerations may provide a justification for policies targeting access in the short and medium run such as compulsory licensing

market structure innovation and optimal patent life m uch work has been directed at determining the relative efficiency of various market structures in the allocation of resources to invention while the conclusions are not entirely clear it seems certain that no single market structure results in a pareto efficient allocation of resources to research and development r d in the light of this certain secondbest procedures must be examined social controls may provide an attractive method of lessening the inefficiencies described above 2 while government research and development subsidies and award programs do exist the most prevalent form of social control is the patent system granting the inventor a monopoly on the use of the discovery for a specified period of time eliminates the free rider problem thus restoring the incentive to invent extension of the duration of protection will increase incentives for private resource allocation toward technical advance unfortunately extension of patent protection by definition brings with it the social inefficiencies recognized in a monopolistic market the

market structure and innovation a survey economics we all recite deals with allocation of limited resources towards satisfaction of unlimited wants resources are typically identified as land labor and capital plus a technology that determines their transformation into consumer goods disparity between the available goods and services and the desired gives rise to scarcity and the question of what how and for whom to produce the focus then shifts to description and evaluation of alternative resource allocation mechanisms for making the choices the pareto criterion by which an allocation of resources is deemed efficient if any reallocation improving the position of some individual worsens the position of others is a commonly employed gauge of a mechanism s performance in the absence of externalities increasing returns to scale and uncertainty a perfectly competitive market system yields a pareto optimal allocation of resources this underlies the view that individual self interest is compatible with society s interest the further conclusion that pareto optimality may not be achieved via the market system in the presence of monopoly elements provides an economic rationale for antitrust laws the objective of a resource allocation mechanism appears to be according to the analysis described above to make the best of available resources the alternative objective of relaxing constraints through expanding the resource base or developing new technology seems to be beyond its scope thus until rather recently technical advance had been regarded in the mainstream of economic theory as unmotivated by the quest for profits and substantially unaffected by resource allocation instead as j schmookler observed technology had been viewed as a parameter like the weather affecting the outcome of resource allocations but itself unaffected by them 84 1965 evidence that technological progress has significantly contributed to growth in productivity together with a substantial increase in research and development activity largely financed by government and carried out by industry see f machlup 51 1962 may have spurred reconsideration of this view once technical advance is regarded as an economic variable it is natural to in

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

health insurance as a two part pricing contract monopolies appear throughout health care we show that health insurance operates like a conventional two part pricing contract that allows monopolists to extract profits without inefficiently constraining quantity when insurers are free to offer a range of insurance contracts to different consumer types health insurance markets perfectly eliminate deadweight losses from upstream health care monopolies frictions limiting the sorting of different consumer types into different insurance contracts restore some of these upstream monopoly losses which manifest as higher rates of uninsurance rather than as restrictions in quantity utilized by insured consumers empirical analysis of pharmaceutical patent expiration supports the prediction that heavily insured markets experience little or no efficiency loss under monopoly while less insured markets exhibit behavior more consistent with the standard theory of monopoly

linkages between financial deepening trade openness and economic development causality evidence from sub saharan africa summary this contribution tests for causality between financial deepening trade openness and economic development for 16 sub saharan african countries the hsiao granger method is used to add to the existing empirical evidence only limited support is found for the popular hypothesis of finance led growth in general the evidence indicates that financial deepening and trade openness have swayed economic development rather marginally in particular the investigated countries have failed to benefit from financial deepening development strategies prioritizing financial or trade sector development hence cannot be supported

a tale of two market failures technology and environmental policy abstract market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies these combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives and can be cost effectively harnessed through the use of economic incentive based policy in the presence of weak or nonexistent environmental policies investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable positive knowledge and adoption spillovers and information problems can further weaken innovation incentives while environmental technology policy is fraught with difficulties a long term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success

the role of knowledge in r d efficiency past research has recognized that both demand and capability influence the allocation of r d resources scholars have had an easier time getting a grip on demand than on capability while it has been recognized that knowledge is an important part of capability to date formalization of knowledge and its role in r d activity has been unsatisfactory this paper models the role of knowledge in r d various sources of such knowledge are considered the model throws a different light on analyses that employ a knowledge capital stock and also illuminates the dual private and public nature of technological knowledge

patent replacement and welfare gains abstract patents were chosen in an era when modern public finance tools were unavailable the same innovation outcomes can be achieved with higher welfare if patent elements are replaced by modern features this paper constructs two theoretical models of product innovation and simulates the welfare effects of replacing patents with an intertemporal bounty arrangement we find that replacing patents with this alternative has the potential to increase welfare in the united states through reform of pharmaceutical patents by 43 9 194 billion when measured in present value terms this is 0 3 1 3 of annual gdp based on simulations involving four selected drug sectors the potential to increase welfare would be higher if applied to the larger sector of drugs as a whole in principal patents could be replaced in other sectors as well

the merits of new pollutants and how to get them when patents are granted the performance of market based environmental regulation is affected by patents and vice versa this interaction is studied for a type of innovation where a new technology reduces emissions of a specific pollutant but at the same time causes a new type of damage if the new pollutant associated with this technology is sufficiently different from existing ones such that marginal damage is increasing in each of them but additive across pollutants a diversification of the pollution portfolio is socially desirable in a situation where the incentives to develop such a technology are created by patents the efficiency of permits is affected by monopoly pricing of the patent holding firm this result carries over to other types of innovation the performance of taxes is limited by either the inability to implement specific pollution mixes or monopoly pricing for constant returns to scale at the industry level the combined use of taxes and permits ensures the first best mix of technologies and provides positive research incentives

emissions taxes versus intensity standards second best environmental policies with incomplete regulation the best emissions tax or emissions cap may be an inferior instrument under incomplete regulation leakage without leakage an intensity standard regulating emissions per unit of output is inferior due to an implicit output subsidy this inefficiency can be eliminated by an additional consumption tax with leakage an intensity standard can dominate the optimal emissions tax since the implicit output subsidy prevents leakage the addition of a consumption tax improves an intensity standard s efficiency may prevent leakage and may be efficient comparing intensity standards to output based updating shows that the latter dominates if updating is sufficiently flexible