Innovation Policy and the Economy, Volume 9

Innovation and Economic Growth and Intellectual Property

Article Snapshot


Josh Lerner and Scott Stern


Volume 9 in NBER Book Series: Innovation Policy and the Economy, eds. Josh Lerner and Scott Stern, MIT Press, Cambridge MA, 2009


Volume 9 of this series discusses how copyright and market design influence innovation.

Policy Relevance

Governments can encourage innovation by setting rules that govern marketplaces effectively.

Main Points

  • If the government wishes to increase support of basic research and development, it would get the greatest return by funding sustainable projects and by supporting young researchers.
  • Patents are often a starting point for negotiations between firms rather than inflexible grants of exclusive rights. Negotiations held between firms before patents are granted can compensate for inefficient patent regimes, but such negotiations are difficult to arrange without a supportive policy environment.
  • Copyright encourages the production of content, like books, and (indirectly) the development of complementary technologies (like printing presses). However, strong copyright can inhibit the development of such technologies; recent difficulties encountered by Google Book Search, which aims to make copyrighted books publicly searchable, is a representative example of this problem.
  • To be viable, marketplaces need to attract a significant portion of potential market participants; to provide an environment where buyers and sellers can make transactions quickly and cheaply; and to be secure against exploitative behavior.
  • Market design is the selection of rules governing a marketplace. Market design principles, properly applied, can incentivize innovation in a market in addition. Well-designed rules will prompt firms to make efficient decisions and will foster competition between firms.


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