Innovation Policy and the Economy, Volume 4

Innovation and Economic Growth, Intellectual Property and Patents

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Adam B. Jaffe, Josh Lerner and Scott Stern


Volume 4 in NBER Book Series: Innovation Policy and the Economy, eds. Adam B. Jaffe, Josh Lerner, and Scott Stern, MIT Press, Cambridge MA, 2004


Volume 4 of this series discusses incentive-based policies, and patent and antitrust reform.

Policy Relevance

Incentive-based policies are likely to be more effective than regulatory approaches to limiting pollution. The U.S. might see innovation increase in response to careful patent and antitrust reform.

Main Points

  • In the U.S., defense expenditures are concentrated in large weapon systems like nuclear arms and submarines, but a shift toward smaller-scale, intelligence-oriented research would be more useful for antiterrorist efforts.
  • Unregulated markets will tend to produce too much pollution and not enough innovation. This suggests that people are better off if environmental technology is encouraged. Incentive-based policy, like taxes on polluting technologies or subsidies for pollution-reducing practices, is more likely to be effective than “command-and-control” policies like mandating the use of particular energy sources.
  • The “human resources revolution”, the implementation of business practices like frequent training, incentive pay, and team-based approaches, seems to have increased worker productivity. Educated workers benefit disproportionately from these practices. However, accounting practices do not permit precise measurements of workplace organization.
  • The European Patent Office, unlike its U.S. counterpart, permits a challenge to a patent immediately after it is issued. Implementing this system in the U.S. would likely improve patent quality and reduce litigation delays.
  • Pharmaceutical firms selling generic drugs can try to invalidate other firms’ drug patents. Brand-name firms respond by settling invalidity suits; this may violate antitrust laws, but analysis of these settlements is complicated.


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