Innovation Policy and the Economy, Volume 11

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Josh Lerner and Scott Stern


Volume 11 in NBER Book Series: Innovation Policy and the Economy, eds. Josh Lerner and Scott Stern, MIT Press, Cambridge MA, 2011


Volume 11 of this series discusses innovation in healthcare, energy, government, and science.

Policy Relevance

Governments may encourage economic development by becoming more open and honest. Determining optimal policy for carbon emissions, antitrust, and research funding requires thorough knowledge of the area being regulated.

Main Points

  • The U.S. medical industry is very inefficient: outcomes are generally bad and prices are high. In other industries, efficient firms out-compete inefficient ones, but this does not happen in the medical industry because public health insurance is oriented to care volume, not quality, and because information about care quality is not available to consumers.
  • Emissions taxes and carbon caps are theoretically equivalent methods for controlling carbon emissions, but their relative effectiveness in encouraging the development of alternative energy sources depends on how much demand for energy changes in response to energy price movements.
  • Antitrust authorities can rely on older “static” models of market power even in highly innovative industries except when new firms enter the industry by cooperating with existing firms.
  • A survey of government reforms suggests that investment and economic growth are encouraged by competition between governments or government subdivisions; by the availability to citizens of information about government operations; and by the normalization of rule compliance in government.
  • Increasing specialization of innovators means that more innovations are produced by older innovators working in teams. Programs aiming to ensure a supply of well-trained researchers will optimally take into account longer training times for new innovators, the difficulty of evaluating projects completed by teams, and the additional challenge of maintaining teams rather than independent researchers.


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