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Report
Intellectual property and market size
Intellectual property protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. As the scale of the market increases, due either to economic and population growth or to the expansion of trade through treaties such as the World Trade Organization, this trade-off changes. We show that, generally speaking, the socially optimal amount of protection decreases as the scale of the market increases. We also provide simple empirical estimates of how much it should decrease.
Report
Determinacy of equilibria in dynamic models with finitely many consumers
We consider a production economy with a finite number of heterogeneous, infinitely lived consumers. We show that, if the economy is smooth enough, equilibria are locally unique for almost all endowments. We do so by converting the infinite-dimensional fixed point problem stated in terms of prices and commodities into a finite-dimensional Negishi problem involving individual weights in a social value function. By adding artificial fixed factors to utility and production functions, we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of ...
Report
IER Lawrence Klein Lecture: the case against intellectual monopoly
In the modern theory of growth, monopoly plays a crucial role both as a cause and an effect of innovation. Innovative firms, it is argued, would have insufficient incentive to innovate should the prospect of monopoly power not be present. This theme of monopoly runs throughout the theory of growth, international trade, and industrial organization. We argue that monopoly is neither needed for, nor a necessary consequence of, innovation. In particular, intellectual property is not necessary for, and may hurt more than help, innovation and growth. We argue that, as a practical matter, it is more ...
Journal Article
Failing to Provide Public Goods: Why the Afghan Army Did Not Fight
The theory of public goods is mainly about the difficulty in paying for them. Our question here is this: Why might public goods not be provided, even if funding is available? We use the Afghan Army as our case study. We explore this issue using a simple model of a public good that can be provided through collective action and peer pressure, by modeling the self-organization of a group (the Afghan Army) as a mechanism design problem. We consider two kinds of transfer subsidies from an external entity such as the U.S. government. One is a Pigouvian subsidy that simply pays the salaries, ...
Working Paper
An approximate dual-self model and paradoxes of choice under risk
We derive a simplified version of the model of Fudenberg and Levine [2006, 2011] and show how this approximate model is useful in explaining choice under risk. We show that in the simple case of three outcomes, the model can generate indifference curves that ?fan out? in the Marshack-Machina triangle, and thus can explain the well-known Allais and common ratio paradoxes that models such as prospect theory and regret theory are designed to capture. At the same time, our model is consistent with modern macroeconomic theory and evidence and generates predictions across a much wider set of ...
Working Paper
The optimum quantity of money revisited
This paper uses a simple general equilibrium model in which agents use money holdings to self insure to address the classic question: What is the optimal rate of change of the money supply? The standard answer to this question, provided by Friedman, Bewley, Townsend, and others, is that this rate is negative. Because any revenues from seignorage in our model are redistributed in lump-sum form to agents and this redistribution improves insurance possibilities, we find that the optimal rate is sometimes positive. We also discuss the measurement of welfare gains or losses from inflation and ...
Report
Rent-seeking and innovation
Innovations and their adoption are the keys to growth and development. Innovations are less socially useful, but more profitable for the innovator, when they are adopted slowly and the innovator remains a monopolist. For this reason, rent-seeking, both public and private, plays an important role in determining the social usefulness of innovations. This paper examines the political economy of intellectual property, analyzing the trade-off between private and public rent-seeking. While it is true in principle that public rent-seeking may be a substitute for private rent-seeking, it is not true ...
Report
Factor saving innovation
We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case. If, however, higher quality capital can be produced slowly, we get a model of endogenous growth in which the growth rate of the economy and the rate of adoption of new technologies are determined by preferences, technology, and initial conditions. ...
Conference Paper
Technological diversification - discussion
Working Paper
The case against patents
The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity. There is strong evidence, instead, that patents have many negative consequences.