13-Positive Externalities and Technology

  1. Free markets can lead to less innovation
    1. If a company invests in R/D
      1. Project fails, company loses out
      2. If the project succeeds, competitors could steal the idea
      3. Heads you lose, tails I win
    2. Appropriability is the ability of the producer to reap the benefits of investment or invention
    3. Conceptually, technology is just the opposite of pollution
  2. Property rights
    1. A patent is an exclusive legal right to use, sell and make inventions for a limited time.(20 years typically in the U.S.)
    2. A copyright is a right of authorship(literary, music or art)
    3. A trademark is a word, symbol or device that indicates the source of a good and helps seller establish reputation
    4. A trade secret is a formula, process or device which makes practice more easy and is relatively unknown
    5. Even with these in place an innovating company only receives 30%-40% of the new value created
  3. Gov’t has policies which helps subsidize innovation
    1. Direct funding(i.e. research grants)
      1. In 2003 the federal government accounted for 30% of R&D spending
      2. The Gov’t, however, can dictate which programs to study
    2. Tax credits are written in the tax code that for every $1 over a certain amount attributed to R&D gets a 20₵ credit. Originally put in in 1981, it accounts for about $5B in tax cuts and is frequently voted in and out of budget(possibly so companies can re-lobby)
    3. Can also subsidize the spread of information(e.g. the internet)
      1. New legislation over the past years have let multiple companies co-operate in R/D projects to share costs and gains instead of a winner take all system
      2. Before it would have been prevented under anti-trust laws
  4. There has been much controversy over too much protection
    1. 200,000 patents a year are granted(on average 18 hours are spent considering each patent). Most patents, though, have no economic impact
    2. By nature patents block competition
      1. Amazon has a patent on 1-click check-out
      2. Xerox “abused” the patent process, having over 17,000 patents. Gov’t realized they were abusing the system, so Xerox agreed to let others use their patents and even some future ones
    3. The goal of all this is a better standard of living, not to be nice to innovators.

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