Innovation Policy and the Economy, Volume 10

Innovation and Economic Growth and Intellectual Property

Article Snapshot


Josh Lerner and Scott Stern


Volume 10 in NBER Book Series: Innovation Policy and the Economy, eds. Josh Lerner and Scott Stern, MIT Press, Cambridge MA, 2010


Volume 10 of this series discusses globalization and alternative incentives for innovation.

Policy Relevance

Weakening intellectual property will not necessarily discourage innovation and may encourage it in some cases. Policies designed to encourage innovation will be more effective when they take globalization into account.

Main Points

  • The Bayh-Dole Act of 1980 made it easier for researchers and institutions that develop patentable technology using federal funds to keep the resulting patents. The Act seems not to have discouraged basic research in favor of more applied work.
  • Globalization has made it easier for biopharmaceutical firms to expand their operations overseas. Research abroad typically complements domestic research, and so globalization itself is unlikely to result in the decline of U.S. pharmaceutical research and development.
  • Foreign-born holders of U.S.-granted doctorate degrees represent a very large fraction of the U.S. academy; most foreign doctoral students stay in the U.S. for at least 10 years after graduating.
  • Entrepreneurs may be of two types: subsistence entrepreneurs, who run small businesses that are unlikely to grow much, and transformational entrepreneurs, who run businesses which may expand rapidly and provide the bulk of job growth in a country. Development policies that don’t focus on facilitating transformational entrepreneurs specifically will be less effective.
  • Internet file sharing has weakened copyright protections, but the creation of music, books, and movies has increased sharply. There are three reasons for this. Sales are only moderately affected by file sharing; file sharing increases demand for complement goods (e.g., demand for concerts rises when music is pirated); and in creative industries, money is not the only motive for creators to produce new work.
  • Intellectual property rights (IPR) like patents incentivize research but create economically-inefficient temporary monopolies. Prizes for a successful innovation can supplement IPR and permit policymakers to experiment with alternative research incentivization schemes that may prove more efficient than IPR.


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