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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.
Working Paper
Conflict, evolution, hegemony, and the power of the state
In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their ?exclusiveness? we find that these hegemonies will be inefficiently ?extractive? in the sense of having inefficiently high taxes, high compensation for state officials, and low welfare.
Working Paper
On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems
We characterize equilibria of general equilibrium models with externalities and taxes as solutions to optimization problems. This characterization is similar to Negishi?s characterization of equilibria of economies without externalities or taxes as solutions to social planning problems. It is often useful for computing equilibria or deriving their properties. Frequently, however, finding the optimization problem that a particular equilibrium solves is difficult. This is especially true in economies with multiple equilibria. In a dynamic economy with externalities or taxes there may be a ...
Report
Perfectly competitive innovation
We construct a competitive model of innovation and growth under constant returns to scale. Previous models of growth under constant returns cannot model technological innovation. Current models of endogenous innovation rely on the interplay between increasing returns and monopolistic markets. In fact, established wisdom claims monopoly power to be instrumental for innovation and sees the nonrivalrous nature of ideas as a natural conduit to increasing returns. The results here challenge the positive description of previous models and the normative conclusion that monopoly through copyright and ...
Report
Growth cycles and market crashes
Market booms are often followed by dramatic falls. To explain this requires an asymmetry in the underlying shocks. A straightforward model of technological progress generates asymmetries that are also the source of growth cycles. Assuming a representative consumer, we show that the stock market generally rises, punctuated by occasional dramatic falls. With high risk aversion, bad news causes dramatic increases in prices. Bad news does not correspond to a contraction of existing production possibilities, but to a slowdown in their rate of expansion. This economy provides a model of endogenous ...
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
The economics of ideas and intellectual property
Innovation and the adoption of new ideas are fundamental to economic progress. Here we examine the underlying economics of the market for ideas. From a positive perspective, we examine how such markets function with and without government intervention. From a normative perspective, we examine the pitfalls of existing institutions, and how they might be improved. We highlight recent research by ourselves and others challenging the notion that government awards of monopoly through patents and copyright are ?the way? to provide appropriate incentives for innovation.
Working Paper
Conflict and the evolution of societies
The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that maximize free resources. These free resources are the output available to society after deducting the payments necessary for subsistence and for the incentives needed to induce pro- duction, and the other claims to production such as transfer payments and resources absorbed by elites. ...
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 ...
Working Paper
Codes of conduct, private information, and repeated games
We examine self-referential games in which there is a chance of understanding an opponent?s intentions. Our main focus is on the interaction of two sources of information about opponents? play: direct observation of the opponent?s code-of-conduct, and indirect observation of the opponent?s play in a repeated setting.