Innovation Policy and the Economy, Volume 3

Innovation and Economic Growth

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Adam B. Jaffe, Josh Lerner and Scott Stern


Volume 3 in NBER Book Series: Innovation Policy and the Economy, eds. Adam B. Jaffe, Josh Lerner, and Scott Stern, MIT Press, Cambridge MA, 2003


Volume 3 of this series discusses the role of technology in the process of economic development.

Policy Relevance

Governments of developing nations can use patent policy to encourage the development of treatments for tropical diseases. Rich countries can aid poor ones by helping to adapt technologies for their local environments.

Main Points

  • Although venture capital fundraising in the United States slowed dramatically prior to 2002, the effect on innovation in the short term was not expected to be dramatic; many of the firms financed in the preceding bubble did not produce much value.
  • In many industries, a merger that concentrates market share in one firm may be expected to hurt consumers. However, when an industry focuses on the development of new technologies like software, permitting a few firms to hold a large share of the market does not seem to reduce innovation.
  • Federal expenditures on defense research stemming from the September 11 terrorist attacks seemed likely to grow, but not at the expense of other research programs. However, if the number of scientists and engineers failed to increase as research expenditures increased, these workers would simply see their pay rise with no increase in research output.
  • Some diseases like cancer are global in scope; others like malaria primarily affect poor countries. Developing nations might incentivize drug development for diseases like malaria by increasing patent protection for resulting drugs. However, they are unlikely to see much benefit from protecting patents on drugs treating diseases like cancer.
  • About one quarter of the world’s population does not see innovations developed elsewhere adapted locally; these people live in poorer countries. Technologies could be spread more broadly if direct aid from rich countries were increased, and if rich countries both facilitated the transfer of intellectual property to poorer countries and made efforts to adapt technologies to tropical climates.


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