Innovation Policy and the Economy, Volume 5

Innovation and Economic Growth and Competition Policy and Antitrust

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Adam B. Jaffe, Josh Lerner and Scott Stern


Volume 5 in NBER Book Series: Innovation Policy and the Economy, eds. Adam B. Jaffe, Josh Lerner, and Scott Stern, MIT Press, Cambridge MA, 2005


Volume 5 of this series discusses how tax and education policy may affect innovation.

Policy Relevance

Tax and education policy may affect entrepreneurship rates, and through entrepreneurs may affect innovation.

Main Points

  • Some countries that are not often seen as technical innovators, like India, China, and Brazil, developed internationally-competitive software sectors in the 1990s. These countries have benefited from their software industries; and this growth has not come at the expense of the software sector in the United States.
  • Revolutionary breakthroughs are disproportionately commercialized by entrepreneurs. The U.S. education system is less rigid than education regimes in other nations and probably encourages the formation of entrepreneurs.
  • Cities can provide an environment conducive to the growth of local firms, and consequently increasing property values and local wages, by cultivating “jurisdictional advantage”—traits particular to a locality that are valuable and not easily reproduced elsewhere.
  • Higher tax rates, and tax rates that increase with income, reduce entrepreneurship. The effects are not limited to manufacturing or service industries.
  • In industries where innovation is important, antitrust authorities should consider the effect that any proposed merger will have on rates of innovation, and any resulting effects of changes in innovation rate on competition in the merged firms’ market.


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