Chapter 2 Investing in Knowledge
-
Upload
bharathi-kamath -
Category
Documents
-
view
218 -
download
0
Transcript of Chapter 2 Investing in Knowledge
-
7/28/2019 Chapter 2 Investing in Knowledge
1/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Some slides adopted from Suzanne Scotchmer
Contents May Be Used Pursuant to AttributionNoncommercialNo Derivative Works 1.0
Genericttp: creat vecommons.org censes yn nc 1.0
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
1
-
7/28/2019 Chapter 2 Investing in Knowledge
2/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Who Funds R&D? Is it the private sector that matters?
Which countries spend more on R&D?
How much money does the government give the private sector for R&D?Universities?
How much money does the private sector give to universities?
How much money goes for defenserelated R&D?
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
2
-
7/28/2019 Chapter 2 Investing in Knowledge
3/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Big difference between public and private R&D:
Private R&D applied
Private R&D maximizes profits
PublicR&D maximizes welfare
(cc)UlrichKaiser
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
3
-
7/28/2019 Chapter 2 Investing in Knowledge
4/26
2.Investin inknowled e2.1Publicandprivatemechanisms
BayhDoyle act (1980) patents are assigned to public research
institutions in the US
Europe followed suit
Technology transfer offices are all over the place (also at UZH)
Why was the act installed in the first place?
(cc)UlrichKaiser
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
4
-
7/28/2019 Chapter 2 Investing in Knowledge
5/26
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
5
-
7/28/2019 Chapter 2 Investing in Knowledge
6/26
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
6
-
7/28/2019 Chapter 2 Investing in Knowledge
7/26
2.Investin inknowled e2.1Publicandprivatemechanisms
N o n d e f e n s e G o v e r n m e n t S e n d i n o n R & D
3
3 .5
1 .5
2
2 .5
rcentage
0 .5
1
P
Year
1981
1983
1985
1987
1989
1991
1993
1995
1997
I n d e c r e a s i n g o r d e r o f t e r m i n a l ( 1 9 9 8 ) v a l u e s : J a p a n ,
(cc)SuzanneScotchmer
G e r m a n y , U . S . ( i n b o l d ) , F r a n c e , U . K . , C a n a d a , I t a l y
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
7
-
7/28/2019 Chapter 2 Investing in Knowledge
8/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
8
-
7/28/2019 Chapter 2 Investing in Knowledge
9/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
9
-
7/28/2019 Chapter 2 Investing in Knowledge
10/26
2.Investin inknowled e2.1Publicandprivatemechanisms
R&D spending, Percentages of total
0.7
0.8
0.5
0.6
ntage
0.2
0.3
.
Perc
0
0.1
1953 1958 1963 1968 1973 1978 1983 1988 1993 1998
(cc)SuzanneScotchmer Darkblue=public,Lightblue=private
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
10
-
7/28/2019 Chapter 2 Investing in Knowledge
11/26
2.Investin inknowled e2.1Publicandprivatemechanisms
0 . 5
0 . 6
.
0 . 2
0 . 3
0 . 4
0
0 . 1
Y e a r
To : US Fundin to industr . Bottom: US Fundin to universities
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
11
-
7/28/2019 Chapter 2 Investing in Knowledge
12/26
2.Investin inknowled e2.1Publicandprivatemechanisms Federal Industrial Total Universities other State/Local
Total
$83,609 R&D Budget 23.67% 40.17% 8.88% 21.43% 5.01% 0.49% 0.34%
, . . . . . . .
$19,463 HHS 19.90% 5.92% 1.32% 56.47% 15.40% 0.68% 0.31%
$9,966 NASA 25.16% 48.67% 13.19% 7.90% 3.86% 0.11% 1.11%
$7,656 Energy 11.38% 15.32% 63.05% 9.43% 0.78% 0.04% 0.01%
, . . . . . . .
$1,892 Agriculture 72.09% 0.58% 0.00% 26.48% 0.48% 0.16% 0.21%$1,163 Commerce 69.82% 16.08% 0.00% 10.92% 2.06% 1.03% 0.00%
$882 Interior 88.06% 3.06% 0.00% 7.74% 0.16% 0.81% 0.32%
. . . . . . .
$620 EPA 18.60% 47.62% 0.00% 22.62% 9.38% 1.64% 0.30%
$1,401 Others 51.25% 7.07% 2.50% 14.78% 20.41% 2.50% 1.57%
(cc)SuzanneScotchmer
ource: , c ence an ngneerng n ca ors , a e -
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
12
-
7/28/2019 Chapter 2 Investing in Knowledge
13/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Examples for public funds
Packetswitching technology of the Internet US DOD
Biotech basis UC Berkeley and San Franscico
Digital computer U Pennsylvania
Laser Columbia U
(cc)UlrichKaiser
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
13
-
7/28/2019 Chapter 2 Investing in Knowledge
14/26
2.Investin inknowled e2.1PublicandprivatemechanismsResearch incentives
u c pu s n ourna s or per s ; repu a on; nowa ays a soincentives to attract funding
Private patent (or perish)
Outcome
Applies for for a patent
Universities apply for four times more patents as private industry
Pressure from university leadership to go for profits instead ofdissemination
Big bang: Harvard/Hoechst USD70 mio. deal in 1984; idea: leverage ideas
(cc)UlrichKaiser
and expertise in return for funding
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
14
-
7/28/2019 Chapter 2 Investing in Knowledge
15/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Public/private
Grantee may restrict communication between colleagues
7% of university funding is privateu c un s may su s ze pr va e un s as un ng goes o same
institution/even same lab
Example: Sandoz wanted to pay USD 300 mio. for 100% of Scrippsesearc ns u e an ego ; cr pps s an un e researc
organization; government asked to scale back (what patents will Sandozpick?)
Startup activity y universities see UZH 175 years year oo orexamples; more prominent examples are Genentech and Chiron (UC)
Licensing offices provide IPR in return for fees
(cc)UlrichKaiser
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
15
-
7/28/2019 Chapter 2 Investing in Knowledge
16/26
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
16
-
7/28/2019 Chapter 2 Investing in Knowledge
17/26
2.Investin inknowled e2.1Publicandprivatemechanisms
vT+ s cost,funds,profit
v
s+m
s
v
m
v
s= overnmentalsubsid ,m=firmsmatchin re uirement invest. ,v=socialvalue,
v u
(cc)SuzanneScotchmer
vT=profit,=firmsshareofv,T=patentlength
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
17
-
7/28/2019 Chapter 2 Investing in Knowledge
18/26
2.Investin inknowled e2.1Publicandprivatemechanisms
Thegovernmentgrantprocess:fundingInventorsinsteadofInventions?
Whymightyouexpectitnottowork? Freeriding,etc.
Whydoesnoonecheat?
Discountedvalueoffuturegrants:)1( r t+
)(1
)()( ccct t
==
Investifthevalueofcheating,c,islessthanvalueoffuturegrants (selfselectionmechanismofthehighfertility(thebest)researchers)
11 rtt ==
c )(t
cc
(cc)SuzanneScotchmer
=1t
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
18
-
7/28/2019 Chapter 2 Investing in Knowledge
19/26
2.Investin inknowled e2.1PublicandprivatemechanismsQuestions about grants:
What if you are a highcost researcher?
What if you are a lowfertility (low)?
e governmen ave o over pay
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
19
-
7/28/2019 Chapter 2 Investing in Knowledge
20/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksThe (public goods) nature of knowledge & information goods
Long tu e Examp e: W at s t e esson
What do these have in common:
Knowled e that DNA is a double helix
Software
Digital music
u c oo s:
Nonrivalness: High cost to create; zero cost to distribute or use. Whatis the efficiency conclusion?
Nonexcludability: If the good is nonexcludable, IP will not work!!
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
20
-
7/28/2019 Chapter 2 Investing in Knowledge
21/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksThe(publicgoods)natureofknowledge&informationgoods
Pr vateGoo s:T ecompet t vemar et se c entprice=marginalcost: Whyisthatefficient?
Whatifatemplatemustbedeveloped?
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
21
-
7/28/2019 Chapter 2 Investing in Knowledge
22/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksWhatdoesIPdo?
IPcreates asa ega matter exc u a ty.
Doesthissolvethepublicgoodsproblem?
Whataboutnonrivalness?
IPprovidesatleastaweakefficiencytestastowhetherthevalueofinvestmentexceedscost
Itdoesnotprivilegethemoreefficientfirms Itdoesnotregulateentryandduplication
IPleadstodeadweightloss
IPconcentratescostsamongtheusers
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
22
-
7/28/2019 Chapter 2 Investing in Knowledge
23/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksIntellectualProperty:Comparedtowhat? PublicSponsorship?
1960 san 1970 sSuperSon cTransport
Publicsupportforprivateenterprise.
Na oleon: Food reservation
Inventionforthepublicgood
NIH,NSF: Researcherinitiatedprojects
: arge e governmen o ec ves
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
23
-
7/28/2019 Chapter 2 Investing in Knowledge
24/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksPrizes
Targete versus ues yresearc
Lyons(bluesky)
Na oleonsfood reservation tar eted
Simplemodel:Investinablueskyidea(v,c)?
Whynotmakethepricedependoncost?
y oesn epr zeg verge r ppe o
Needstomakethepricedependonvalue
TheroleofIPasabackgroundforprizes: Photography
Hyattandcelluoid
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
24
-
7/28/2019 Chapter 2 Investing in Knowledge
25/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksSimplePrizesandScarceIdeas
As ng e nventors asan ea. Hemust ec ew e t e rto nvest n t,an wewanthimtomaketherightdecision.
Anideaisapair(v,c)wherecisthecostofmakingtheideaaninnovationandvisperperiodprofit.
Investmentisefficientif (1/r)v>c.
Ifwewere oin touse rizesinstead whatvalueof rizeshouldweset?
Howdoestheoptimalprizerelatetov? toc?Howdoesthisdependonwhatisobservable?Verifiable?
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
25
-
7/28/2019 Chapter 2 Investing in Knowledge
26/26
2.Investin inknowled e2.2HowIntellectualPropertyWorksPrizes:Cantheprizebelinkedtovalue?
Hows ou t eva ueo t epr ze ec osen
Howwastheprizechoseninthecaseoflongitude?
Cannin ? TheL onnaise silkweavers?
Woulditbebettertolinktheprizetocost?
Whatproblemsdopatentsandprizehaveincommon?
(cc)SuzanneScotchmer
Universityof ZurichDepartmentof BusinessAdministration
Prof.Dr.UlrichKaiser
TheEconomicsofInnovationSpringsemester2013
26