Reed College
Reed College

Economics Department

Economics of Science and Technology
Jeffrey Parker, Reed College
Spring 2021

Go to this week's reading

As with most courses, this reading list only scratches the surface of the interesting and relevant literature on each of the topics we discuss. If you are interested in additional readings, please contact the instructor or search for relevant topics on EconLit. We also read only a few chapters of many books to give you a brief introduction to the subjects covered by the books. You may wish to read more chapters to get more detailed knowledge of the subject.

Many of the readings are available on the Internet. Most of these will have links on the reading list directly to the reading. Note that most of these are available through online subscriptions that can be accessed only if you are connecting through the Reed network. Some of the books are available as e-books through the library Web site. Some books and articles are available through electronic reserves and can be accessed through the class Moodle site. For those that are only available as physical books on reserve, be sure to plan your reading carefully so that you can gain access to the limited number of copies. Not everyone will be able to read these on the morning (or even the evening) before they are discussed in class.

Starred (*) readings are not required. They are listed for those who want further detail about aspects of the topic being covered.

In some sections there is too much reading for everyone to do, so we will assign specific readings to individuals or groups, who will report on the content of these readings for the remainder of the class.

Table of Contents

I. Introduction

Session 1 (January 25): Introduction to Econ 354

Key Questions
  • What topics does this class cover?
  • What are the requirements?
Readings
  • None

Session 2 (January 27): Knowledge

Key Questions
  • What are the distinctive characteristics of knowledge as an economic good?
  • Why are knowledge "spillovers" important? What determines their magnitude?
  • What is the "knowledge dilemma," why is it an economic problem, and what mechanisms can be used to try to mitigate it?
Readings
  • Foray, Dominique. 2004. The Economics of Knowledge. Cambridge, Mass.: MIT Press. [E-reserves through Moodle]
    • Chapter 5: Knowledge Spillovers
    • Chapter 6: Knowledge as a Public Good

Session 3 (January 29): Innovation

Key Questions
  • What is the difference between "invention" and "innovation" and why is innovation the more important concept for economic analysis?
  • What are the roles of basic research, applied research, and development in innovation?
  • Does the inevitable interconnectedness of innovations that is discussed by Rosenberg render hopeless any attempt to measure the significance of a single innovation or to measure the overall rate of innovation?
  • With respect to the evolution of paper clips:
    • Did the innovations seem to arise more from "demand" (the need for something new and better) or "supply" (the technological ability to produce something new and better)?
    • How would you, in theory and in practice, try to construct a measure of the amount of paper-clip innovation in each year?
Readings
  • Freeman, Chris, and Luc Soete. 1997. The Economics of Industrial Innovation, 3rd ed. Cambridge, Mass.: MIT Press.
    • Chapter 1: Introduction [E-book through library]
  • Rosenberg, Nathan. 1979. Technological Interdependence in the American Economy. Technology and Culture 20 (1):25-50. Reprinted as Chapter 3 in N. Rosenberg, Inside the Black Box: Technology and Economics. Cambridge and New York: Cambridge University Press.
  • Petroski, Henry. 1992. The Evolution of Useful Things, New York: Alfred Knopf. [E-reserves through Moodle]
    • Chapter 4: From Pins to Paper Clips

Session 4 (February 1): Basic microeconomics of innovation

Key Questions
  • What do economists mean by "appropriability" of the gains from innovation? Who is appropriating what? Why is it a crucial concept?
  • What are the advantages of having a high level of appropriability? What are the disadvantages? Who gains and who loses from high appropriability?
  • In a dynamic "Red Queen" equilibrium with creative destruction:
    • Do producers have monopoly power?
    • Do producers make economic profit in the long run?
    • How is research and development funded?
Readings
  • Schumpeter, Joseph A. 1950. Capitalism, Socialism, and Democracy. New York: Harper & Row. [E-reserves through Moodle]
    • Chapter VII. The Process of Creative Destruction
  • Parker, Jeffrey. 2016. Technological Change and Dynamic Equilibrium. Unpublished manuscript.
  • *(Optional) Video lecture from fall Econ 201 class covering this manuscript.
  • *(Optional) Baumol, William J. The Microtheory of Innovative Entrepreneurship. [E-book through Reed Library] [This is the more detailed model summarized in the previous reading. Read these chapters if you want to see a more complete exposition.]
    • Chapters 1 through 7 cover the basic model I've summarized in the manuscript above.

Session 5 (February 3): Appropriability of gains from innovation

Key Questions
  •  In light of the analysis from the last class, briefly describe how each of the following can act as an "appropriability mechanism" or "value-capture mechanism," allowing innovators to profit from their innovations:
    • Patents
    • Trade secrets
    • Lags in imitation
    • Control over complementary assets
  • The IBM-paradigm personal computer was the undisputed market winner in its market. Why did IBM not profit much from it? Who did?
  • Why is the problem of limited appropriability particularly acute in the "digital economy"?
Readings
  • Teece, David J. 1986. Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy. Research Policy 15 (6):285-305. [E-reserves through Moodle]
  • Teece, David J. 2018. Profiting from Innovation in the Digital Economy: Enabling Technologies, Standards, and Licensing Models in the Wireless World. Research Policy 47 (8):1367-1387. [E-reserves through Moodle]

Session 6 (February 5): Briefing on innovation simulation

This session interrupts our regular topical analysis to introduce you to the innovation simulation that will proceed over the next few weeks. There will be a "debriefing" session after the conclusion of the simulation sometime in March (tentatively, March 12).

Reading

II.  Technological Epochs

Session 7 (February 8): The Industrial Revolution

Key Questions
  • What made the Industrial Revolution a "revolution"?
  • What were the most central innovations and how did they change society?
  • Which examples of Rosenberg's concept of "technological interdependence" seem to you to be most important during the Industrial Revolution? Why?
Readings

Session 8 (February 10): 1850 to 1950

Key Questions
  • Briefly consider how each of the following key innovations enabled advances in the economy beyond the industry that produced it:
    • Steel
    • Railroads
    • Electricity
    • Mass production
    • Automobiles
  • Mowery and Rosenberg (p. 1) quote Alfred North Whitehead as saying, "The greatest invention of the 19th century was the invention of the method of invention." Given that the Industrial Revolution was full of great inventions that occurred before the 19th century, what does this mean?
Readings
  • Mokyr. 1990. Lever of Riches. [E-book through Reed Library]
    • Chapter 6: The Later Nineteenth Century: 1830-1914.
  • Mowery, David C., and Nathan Rosenberg. 1998. Paths of Innovation: Technological Change in 20th-Century America, Cambridge and New York: Cambridge University Press. [E-reserves through Moodle]
    • Chapter 1: Introduction
    • Chapter 2: The Institutionalization of Innovation, 1900-90.
  • Freeman and Soete. 1997. Economics of Industrial Innovation [E-book through Reed Library]
    • Chapter 3: The Age of Electricity and Steel
    • *Chapter 4: Process Innovations in Oil and Chemicals (optional)
    • *Chapter 5: Synthetic Materials (optional)
    • Chapter 6: Mass Production and the Automobile

III. Technology and the Economy

Session 9 (February 12): Technological change and economic growth

Key Questions
  • How do we measure economic growth?
  • Are "technological progress" and "increase in productivity" the same thing?
  • How do we measure the contribution of technology/productivity to growth at the aggregate level?
  • How much of the growth in countries' living standards over time has resulted from technology/productivity?
  • How does new technology interact with investment in physical capital and human capital in the process of economic growth?
  • How strong is the connection between innovation and productivity growth at the firm level?
Readings
  • Mokyr, Joel. 1990. The Lever of Riches: Technological Creativity and Economic Progress, New York: Oxford University Press.
    • Chapter 1: Introduction
  • Maddison, Angus. 1994. Explaining the Economic Performance of Nations, 1820-1989. Chapter 2 in W.J. Baumol, R.R. Nelson, and E.N. Wolff, eds., Convergence of Productivity: Cross-National Studies and Historical Evidence, pp. 20-61. [E-reserves through Moodle]
  • Jorgenson, Dale W., and Khuong Vu. 2016. "The ICT Revolution, World Economic Growth, and Policy Issues." Telecommunications Policy 40:383-397. [E-reserves through Moodle]
  • Hall, Bronwyn H. 2011. Innovation and Productivity. Cambridge, Mass.: National Bureau of Economic Research. NBER Working Papers, No. 17178.

Session 10 (February 15-->19): Returns to R&D

Key Questions
  • Why is the social return to R&D investment larger than the private return?
  • Why is it difficult to measure these payoffs?
  • How do Jones and Summers measure the return? Do you find their results convincing?
  • How do Bloom et al. measure the return? Do you find their results convincing?
Readings

 

Session 11 (February 17-->22): Technological change and long-run changes in relative wages

Key Questions
  • What factors determine the relative supply of skilled vs. unskilled workers?
  • How quickly does the relative supply respond to these factors? In other words, is supply elastic or inelastic over months? Over years? Over decades?
  • Is innovation always "skill-biased"? (Give some examples.)
  • What economic factors help determine the degree to which innovation is skill-biased?
Readings
 

Session 12 (February 19-->24): Information technology and wages

Key Questions
  • What do Acemoglu and Restrepo mean by the productivity/displacement effect and the reinstatement effect? What effects do they have, respectively, on the demand for various kinds of labor?
  • Briefly describe the model of automated and non-automated "tasks" that they develop. Do you think that this model provides useful insights about how innovation affects labor markets?
  • Briefly, how to Acemoglu and Restrepo explain relative wage movements in the United States since World War II? Does this conflict with or complement Goldin and Katz's explanation?
  • How do Balsmeier and Woerter examine the effect of investment in digitization on the Swiss labor market? What effects do they find?
Readings

Session 13 (February 22-->26): The future of wages

Key Questions
  • "The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment." (Warren Bennis, management consultant) Cited in Berg, Buffie, & Zanna, Journal of Monetary Economics, 2018. True, exaggeration, or nonsense?
  • Which jobs are most likely to be lost to automation in the coming decades? Which are least likely to be lost?
  • What kind of education would be most valuable in avoiding job loss?
Readings

Session 14 (February 24-->March 1): Technology and the environment

Key Questions
  • Use an example to explain briefly the "demand-pull" and "technology-push" market failures in the incentives for environmental innovation.
  • As pointed out in some of the papers surveyed, innovations that improve efficiency in technologies such as auto fuel economy could either be used (1) to reduce fuel use and emissions or (2) to increase autos' power and weight for given fuel use. What economic and government policy factors determine which the direction in which the new technologies will be applied?
  • List and briefly describe some of the important policy actions by governments that affect "green innovation." Which ones seem to have had the largest effects?
Readings

IV. The Process of Innovation

Session 15 (February 26-->March 3): Measuring innovation

Key Questions
  • Why is innovation difficult to quantify?
  • What are some of the principal measures that used and, for each one, what are their advantages and disadvantages?
  • If you were to define a "perfect" measure of innovation at the firm level, what would its characteristics be? Why?
Readings
  • Patel, Pari, and Keith Pavitt. 1995. Patterns of Technological Activity: Their Measurement and Interpretation. Chapter 2 in P. Stoneman, ed., Handbook of the Economics of Innovation and Technological Change, Blackwell. (An overview of some of the traditional methods of measuring innovation.) [E-reserve through Moodle]
  • Trajtenberg, Manuel. 2002. A Penny for Your Quotes: Patent Citations and the Value of Innovations. Chapter 2 in A.B. Jaffe and M. Trajtenberg, eds., Patents, Citations, and Innovations: A Window on the Knowledge Economy. Cambridge, Mass.: MIT Press. (A discussion of one particular method: patent citations.) [E-reserve through Moodle]
  • Kogan, Leonid, Dimitris Papanikolaou, Amit Seru, and Noah Stoffman. 2017. Technological Innovation, Resource Allocation, and Growth. Quarterly Journal of Economics 132 (2):665-712.

Session 16 (March 1-->5): Interfirm diffusion of innovations

Key Questions
  • What are the processes/channels by which innovation by one firm diffuses to others?
  • What determines how rapidly this diffusion occurs?
Readings

Session 17 (March 8): International diffusion of technology

Key Questions
  • Diffusion of technology is difficult to measure. How do Caselli/Coleman and Comin/Hobijn measure the movement of technology among countries?
  • What factors seem to determine the rate at which new technologies diffuse to other countries?
  • Discuss the "meta-regression" methodology of the Neves and Neves Sequeira paper. What are its advantages and disadvantages?
Readings

Session 18 (March 10): Kinds of innovation

Key Questions
  • What is the difference between "STI" knowledge and "DUI" knowledge?
  • Why might there be synergies between them? What does the evidence say?
  • Rosenberg and von Hippel describe two quite different ways in which users contribute to innovation. Describe the difference.
  • The readings on user innovation are old. Can you think of more recent examples of user innovation?
Readings
  • Jensen, Morten Berg, Björn Johnson, Edward Lorenz, and Bengt Åke Lundvall. 2007. Forms of Knowledge and Modes of Innovation. Research Policy 36 (5):680-693.
  • Schweisfurth, Tim G., and Christina Raasch. 2018. Absorptive Capacity for Need Knowledge: Antecedents and Effects for Employee Innovativeness. Research Policy 47 (4):687-699. [E-reserve through Moodle]
  • Rosenberg, Nathan. 1982. Inside the Black Box:Technology and Economics. Cambridge and New York: Cambridge University Press.
    • Chapter 6: Learning by Using [E-reserve through Moodle]
  • von Hippel, Eric. 1988. The Sources of Innovation. Oxford and New York: Oxford University Press, Chapter 2: Users as Innovators. [E-reserves thtough Moodle]

Session 19 (March 12): Firm culture and innovation

Key Questions
  • How does Lester and Piore's evidence compare with the findings of Jensen et al. from last week's reading?
  • What do Lester and Piore mean by the analogy of the "cocktail party"?
  • How could the information in this book be useful to inform the organization of a startup firm?
Readings
  • Lester, Richard K., and Michael J. Piore. 2004. Innovation, The Missing Dimension. Cambridge, Mass.: Harvard University Press. [E-book through Reed Library]
    • Introduction
    • Chapter 1: Integration in Cell Phones, Blue Jeans, and Medical Devices
    • Chapter 2: Where Do Problems Come From?
    • Chapter 3: Conversation, Interpretation, and Ambiguity

V. Science and Innovation

Session 21 (March 15): Economics of science

Key Questions
  • How does the reward structure of academic science differ from that of corporate innovation? How do the incentives for choosing research projects differ between academics and corporate labs?
  • Thinking of the term literally, how do incentives for "publication" differ between academic and corporate settings?
  • What are the advantages and disadvantages of using grants to fund academic science?
  • What evidence do Azoulay et al. find about the effects of scientific superstars on the advancement of science?
  • In planning a scientific career, what are the advantages and disadvantages of academic vs. corporate science jobs?
Readings

Session 22 (March 17): Academic research and corporate innovation

Key Questions
  • How did the Bayh-Dole Act change the economics of academic science?
  • How do patents, corporate support, and other profit opportunities affect the choice of research topics for academic scientists?
    • What are the advantages and disadvantages of this from a social perspective?
Readings

VI. Intellectual Property and Innovation

Session 23 (March 19): The nature of patents

Key Questions
  • What protection do patents afford in the United States?
  • How are these protections enforced?
  • Why does the effectiveness of patent protection vary across industries and inventions?
  • How did the America Invents Act change the economics of patent law in the United States?
Readings
  • Scotchmer, Suzanne. 2004. Innovation and Incentives. Cambridge, Mass.: MIT Press. 
    • Chapters 1-3 [E-reserves through Moodle]
  • Hall, Bronwyn H., and Dietmar Harhoff. 2012. Recent Research on the Economics of Patents. Annual Review of Economics 4:541-565.
  • Bird, Robert C. 2013. "The America Invents Act, Patent Priority, and Supplemental Examination." In The Changing Face of U.S. Patent Law and its Impact on Business Strategy, edited by Daniel R. Cahoy and Linda J. Oswald, 63-81. Cheltenham, U.K.: Edward Elgar.
  • *de Saint-Georges, Matthis, and Bruno van Pottelsberghe de la Potterie. 2013. A Quality Index for Patent Systems. Research Policy 42 (3):704-719. (This paper is not required. Peruse it to see the kinds of characteristics that vary across patent systems and how some of the major countries rank.)

Session 20 (Saturday, March 20): Discussion of simulation

Reading

Session 24 (March 22): Trade secrets

Key Questions
  • What legal rights do the owners of trade secrets have to protect their secrets?
  • What kinds of innovations are best protected by secrecy and what kinds are not?
Readings

Session 25 (March 24): Patents and innovation

Key Questions
  • How important is patent protection in providing incentives for innovation?
  • Do patent barriers impede cumulative innovation?
Readings

Session 26 (March 26): Problems with the U.S. patent system

Key Questions
  • What was the goal of creating the Court of Appeals for the Federal Circuit to handle patent cases? What have been the advantages and disadvantages in practice?
  • Jaffe and Lerner emphasize the "Madey Decision" as a turning point in patent policy. What are the basic facts of that case and why is it important?
  • What are the implications of the the following characteristics of patent law?
    • Challengers to patents must file infringement cases in civil court.
    • Patents are presumed to be valid unless proved invalid.
    • Most patent cases are settled out of court and the Supreme Court rarely hears them.
  • What does the evidence say about the effectiveness of the patent office in examining patent applications?
Readings

Session 27 (March 29): Patent trolls

Key Questions
  • What are patent trolls and how do they make money?
  • What social costs are imposed by trolls?
  • What potential benefits arise from the existence of trolls?
Readings

Session 28 (March 31): The anti-commons phenomenon

Key Questions
  • What are the key elements of the anti-commons hypothesis?
  • In what ways is there a conflict between the norms of academic science and the incentives of patent law?
  • Why is "Pasteur's quadrant" the locus of potential conflicts?
  • What are the basic facts of the "oncomouse" case and why is it important for the anti-commons debate?
  • What does the evidence say about the importance of this problem?
Readings

Session 29 (April 2): Economics of open-source software

Key Questions
  • How do open-source projects "work"?
  • What are some of the problems that these projects may encounter?
  • Why might programmers contribute code to open-source projects?
  • What does the evidence say about which motivations are most important?
Readings
  • Lerner, Josh, and Jean Tirole. 2002. Some Simple Economics of Open Source. Journal of Industrial Economics 50 (2):197-234. 
  • *Fershtman, Chaim, and Neil Gandal. 2011. A Brief Survey of the Economics of Open Source Software. London: Centre for Economic Policy Research. CEPR Discussion Papers, No. 8434. (This is not required, but has useful and more recent references for anyone interested in reading more.)

VII. Issues in Techological Change

Session 30 (April 5): Path dependence

Key Questions
  • What do we mean by "path dependence"?
  • Why is it important to the economics of technological progress?
  • What do you make of the evidence presented for and against the QWERTY keyboard as an example of path dependence?
  • What other examples of path dependence do you think are important in today's economy?
Readings
  • Arthur, W. Brian. 1994. Increasing Returns and Path Dependence in the Economy, Ann Arbor, Mich.: University of Michigan Press. [E-reserves through Moodle]
    • Chapter 1: Positive Feedbacks in the Economy
    • Chapter 2: Competing Technologies, Increasing Returns, and Lock-In by Historical Small Events
  • David, Paul A. 1985. Clio and the Economics of QWERTY. American Economic Review 75 (2):332-337.
  • Liebowitz, S. J., and Stephen E. Margolis. 1990. The Fable of the Keys. Journal of Law and Economics 33 (1):1-25. 

Session 31 (April 7): Networks, standards, and externalities

Key Questions
  • What is a network effect?
  • Under what conditions can a network effect lead to economic inefficiency?
  • How is the idea of a network standard related to path dependence?
  • Who should set standards, or should standards be allowed to evolve through the market?
Readings

Session 32 (April 9): Basics of venture capital

Key Questions
  • Why is bank lending not appropriate for risky startups?
  • What does venture capital do for startups that traditional share ownership does not? Why is this important?
  • In a world of global capital markets, why is venture capital usually quite local? What advantages and disadvantages does this pose?
Readings

LATE SPRING BREAK

Session 33 (April 19): Analysis of and alternatives to venture capital

Key Questions
  • What role do patents play in the venture-capital process?
  • What is crowdfunding? How does it work and why is it useful for innovators?
  • Is crowdfunding a substitute or a complement for venture capital in financing innovation?
Readings
  • Haeussler, Carolin, Dietmar Harhoff, and Elisabeth Mueller. 2014. How Patenting Informs VC Investors – The Case of Biotechnology. Research Policy 43 (8):1286-1298.
  • *Kerr, William R., Ramana Nanda, and Matthew Rhodes-Kropf. 2014. Entrepreneurship as Experimentation. Journal of Economic Perspectives 28 (3):25-48. (Optional paper of interest.)
  • Stevenson, Regan M., Donald F. Kuratko, and Jared Eutsler. 2019. Unleashing Main Street Entrepreneurship: Crowdfunding, Venture Capital, and the Democratization of New Venture Investments. Small Business Economics 52 (2):375-393.
  • Bonini, Stefano, and Vincenzo Capizzi. 2019. The Role of Venture Capital in the Emerging Entrepreneurial Finance Ecosystem: Future Threats and Opportunities. Venture Capital 21 (2-3):137-175. [E-reserves through Moodle]
  • *Da Rin, Marco, Thomas F. Hellmann, and Manju Puri. 2011. A Survey of Venture Capital Research. Cambridge, Mass.: National Bureau of Economic Research. NBER Working Papers, No. 17523. Subsequently published in George Constantinides, Milton Harris, and René Stulz (eds.) Handbook of the Economics of Finance. Volume 2, Part A, 2013, Pages 573–648. (This is a recent survey of the literature on venture capital. It is too long to read, but will be a useful reference for anyone who wants to learn about the current state of VC research.)

VIII. Technology Policies and National Systems of Innovation

Session 34 (April 21): Institutions, politics, and innovation

Key Questions
  • What determines which countries are successful in raising living standards through innovation or imitation?
  • Must every country innovate to be wealthy?
  • In what ways are political institutions important in determining the pattern of productivity and wealth?
Readings
  • Acemoglu, Daron, and James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Business Publishing. [E-reserves through Moodle.]
    • Preface
    • Chapter 1: So Close and Yet So Different
    • Chapter 2: Theories that Don't Work
    • Chapter 3: The Making of Prosperity and Poverty

Session 35 (April 23): Government policies for innovation

Key Questions
  • What do Schot and Steinmueller mean by "three frames"? What is a "frame" in this context? Do individual elements of innovation policy have effects in all three frames or are they specific to one?
  • The last three papers below discuss the efficacy of various policy measures for R&D and innovation. List the most common policy tools that have been applied and very briefly assess the empirical evidence presented about their effectiveness.
Readings
  • Schot, Johan, and W. Edward Steinmueller. 2018. Three Frames for Innovation Policy: R&D, Systems of Innovation and Transformative Change. Research Policy 47 (9):1554-1567. [E-reserves through Moodle]
  • Brown, James R., Gustav Martinsson, and Bruce C. Petersen. 2017. What Promotes R&D? Comparative Evidence from Around the World. Research Policy 46 (2):447-462. [E-reserves through Moodle]
  • Hall, Bronwyn H. 2019. Tax Policy for Innovation. National Bureau of Economic Research Working Paper Series, No. 25773.
  • Guceri, Irem, and Li Liu. 2019. Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence. American Economic Journal: Economic Policy 11 (1):266-91.

Sessions 36-38 (April 26, 28, 30): National innovation systems

This final section of the course will focus on national innovation systems of various countries, with presentations from five groups on their selected countries. The readings below provide some basic background and resources. If there were fewer students (so that presentations could fit into two days), we would cover roughly the first four together. I do strongly suggest that you read these, especially the first two, which are quite general.

Readings