Patents, Prizes and Subsidies

by on May 19, 2016 at 7:25 am in Economics, Education, Science | Permalink

Thinking about the Solow model and the limits of capital accumulation as a force for growth leads naturally to thinking about ideas and the institutions that create incentives to produce and use new ideas. Here is Patents, Prizes and Subsidies, the latest video from our Principles of Macroeconomics course at MRU–based, of course, on our textbook, Modern Principles.

My favorite part of this video is Tyler doing a cameo as an armchair economist.

1 rayward May 19, 2016 at 8:38 am

Another very good video. I will be the contrarian in my comment. Tabarrok emphasizes that ideas and innovators are the engine (and engineer) for progress and economic growth and, hence, should be encouraged, even subsidized. But ideas, especially big ideas, and innovators, especially big innovators, can be the source of destabalization, as the innovators’ risk becomes everybody’s (systemic) risk (through finance, etc.) when large bets go bust. Of course, risk sharing was the greatest innovation in finance; and the greatest threat to stability if not properly managed. As one economist,Tabarrok, praises ideas and innovators, other economists worry that the innovators will once again wreak havoc, causing another financial meltdown with their risk taking ways, and they seek ways to restrict the innovators (by, among other things, limiting their access to risk capital). Up is down and down is up. A favorite of Tabarrok and Cowen, John Cochrane, has proposed equity financed banking as the solution to too much risk taking, the consequence of which is that innovators with the best ideas may not have access to capital in order to bring their ideas to fruition. What ideas we get instead are flying cars (or is it self-driving cars) and spaceships to Mars. It’s all very confusing.

2 anon May 19, 2016 at 9:18 am

Note that Financial meltdown is a metaphor based on another kind of meltdown which we have also experienced. Risk management is important in all fields.

3 anon May 19, 2016 at 9:19 am

If my comments look weird it’s because I have decided to use voice input and not look back. Doing my part to push the science forward.

4 anon May 19, 2016 at 10:01 am

I too found this video very well done. Video production team should be very proud. Great artwork applied in just the right way, visually entertaining without over burdening the subject matter.

5 Joshua Silverson III PhD May 19, 2016 at 10:56 am

Enjoyable video. If you check my blog, you will see how I’ve recently discussed the solow model and its inability to account for the growth of patents in developing countries.

6 Curt F. May 19, 2016 at 11:00 am

Great video. However I can’t help but nitpick. The use of the chemical structure of atorvastatin at 2:12 was great to see (and appears to be correctly represented, which is a minor miracle), but then chemistry gets short shrift later on (~4:20) when only mathematics, physics, and molecular biology are mentioned.

Also, the existence of such a thing as “basic research” is quite arguable.

Again though, all in all, great video.

7 Alex Tabarrok May 19, 2016 at 11:10 am

Thanks! I didn’t think anyone would pick up the chemical structure! Also, no short shrift to chemistry intended. My wife is a molecular biologist so that may help to explain what gets mentioned.

8 anon May 19, 2016 at 11:12 am

Historical Trends in Federal R&D has a “by Discapline” chart. They group “physical sciences” and that group has had steady funding.

The big story is (no surprise really) medicine. We may talk about fringe efforts, but mainly we don’t want to die. Our funding reflects that. Health research has exploded.

9 Alain May 19, 2016 at 11:56 am

This might be the best video in the series. You took an important, which is for many people irrationally heated, gave a nice overview and then went into the basic arguments.

10 Ray Lopez May 19, 2016 at 12:39 pm

The Patent Office until recently was using the same press for the ‘seal’ on a US Letters Patent. Until the 1970s I think.

Good basic video.

11 Alain May 19, 2016 at 2:25 pm

You should consider covering:

1) The negative externalities of bad ideas.
2) The nonlinear relationship between good ideas and population.

12 Ray Lopez May 19, 2016 at 2:53 pm

re your 2), which way does the curve bend, convex up (Mankiew thesis) or concave down (Cowen thesis)?

13 Alex Tabarrok May 19, 2016 at 3:18 pm

Yup, 2) is discussed in The Idea Equation which will be up at MRU in two weeks.

14 Alain May 19, 2016 at 4:22 pm

Awesome, thank you.

15 anon May 19, 2016 at 4:25 pm

I think economists were slow to accept that ideas/population matter less when connectivity is high. You needed more attempts at the first flying machine when it was word of mouth, and no one watched the YouTube on the same day.

16 MikeP May 20, 2016 at 2:27 am

I enjoyed that a lot. In my own experience I greatly enjoyed pursuing my Ph.D. in a non-applied, “basic” science (systematics), but the professional incentive never compared to the monetary incentive I’ve experienced in my patent work (automotive).

17 zby May 20, 2016 at 9:37 am

Patents not only restrict spreading the ideas – they also conflict with other people independenty coming to the same idea. In the past maybe it was manageable – now with thousands and thousands of patents in every field it becomes unmanageable. Especially in areas where there are no good indexes to find out existing patents – in chemistry you can research all patents on the substances that you use – but in software you cannot. Writing software today is like building a house on land that can belong to someone but you have no way to check it until that someone comes to you and wants a ransom on your business.

18 GMcK May 22, 2016 at 12:40 am

Very nice intro to the classic arguments for intellectual property. The video was probably wise not to mention copyright, which isn’t even about “ideas” but rather the documented expression of them, and its insanely long term nowdays – life of the author plus 70 years or until Mickey Mouse is no longer profitable, whichever is longer.

But it would have been helpful to recognize that there are other incentives than money for innovation — it is reported that Paul Allen spent more than $100 million developing the SpaceShip One spaceplane that won the $10 million Ansari X Prize. I suppose you could categorize that under the form of “private subsidy” called philanthropy. Philanthropy is of course hugely important in biomedical innovation, where the Wellcome Trust and the Howard Hughes Medical Institute are big players, while the Gates Foundation drives dissemination of innovation more than fundamental new ideas.

And not to mention the mere existence of the entire open source software community and it’s anti-propertarian license agreements. It seems a stretch to call every little OSS code contribution, bug fix and documentation update as “philanthropy”, but crowdsourcing does strange things to standard capitalist processes.

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