Economics of innovation & Intellectual
property
Lecture 1: Innovation & Market Structure
1: Introduction to economics of innovation
Why do economists study innovation?
→ Human welfare and life expectancy has exploded since the industrial revolution
→ As time goes on, we can do more with less resources
→ While still improving our lives and addressing societal challenges
,“Paul Krugman speaks for many, if not most, economists when he says, “Productivity isn’t
everything, but in the long run it’s almost everything.” Why? Because, he explains, “A
country’s ability to improve its standard of living over time depends almost entirely on
its ability to raise its output per worker”—in other words, the number of hours of labor it
takes to produce everything, from automobiles to zippers, that we produce. Most countries
don’t have extensive mineral wealth or oil reserves, and thus can’t get rich by exporting
them. So the only viable way for societies to become wealthier — to improve the
standard of living available to its people — is for their companies and workers to keep
getting more output from the same number of inputs, in other words more goods and
services from the same number of people. Innovation is how this productivity growth
happens.”
– Brynjolfsson and McAfee: The Second Machine Age: Work, Progress, and Prosperity in a
time of Brilliant Technologies (2014)
Some of the key innovations of the last 200 years:
1800 1800 - Electric Battery
1804 - Steam Locomotive
1807 - Internal Combustion Engine
1809 - Telegraph
1817 – Bicycle
1820 1821 - Dynamo
1823 - Braille Writing System
1828 - Hot Blast Furnace
1831 - Electric Generator
1836 - Five-Shot Revolver
1840 1841 - Bunsen Battery
1842 - Sulfuric Ether-based Anaesthesia
1846 - Hydraulic Crane
1850 - Petroleum Refining
1856 - Aniline Dyes
1860 1862 - Gatling Gun
1867 - Typewriter
1876 - Telephone
1877 - Phonograph
1878 - Incandescent Lightbulb
,1880 1885 - Light Steel Skyscrapers
1886 - Internal Combustion Automobile
1887 - Pneumatic Tire
1892 - Electric Stove
1895 - X-Ray Machine
1900 1902 - Electric Air Conditioner
1903 - Wright Biplane
1906 - Electric Vacuum cleaner
1910 - Electric Washing Machine
1914 - Rocket
1920 1921 - Insulin
1928 - Penicillin
1936 - First Programmable Computer
1939 - Atom Fission
1940 1942 - Aqua Lung
1943 - Nuclear Reactor
1947 - Transistor
1957 - Satellite
1958 - Integrated Circuit
1960 1967 - Portable Handheld Calculator
1969 - ARPANET (precursor to internet)
1971 - Microprocessor
1973 - Mobile (portable cellular) telephone
1976 - Supercomputer
1980 1981 - Space Shuttle
1987 - Disposable Contact Lenses
1989 - High Definition Television
1990 - World Wide Web Protocol
1996 - Wireless Internet
2000 2003 - Map of Human Genome
, → Firms invest a lot in R&D and create many new technologies
So, innovation benefits society and also benefits businesses, that use innovation to stay
ahead of the competition and to increase profit
→ But not all is good, we still have work!
→ Key problem:
firms invest less than is socially optimal in innovation. Because society benefits more
from innovation than any individual business and innovation is hard to finance,
especially for small companies
→ Therefore, governments need to intervene
Productivity growth is slowing, even though we invest more in R&D.
What do we spend on innovation?
In 2000, the European Commission set
the goal of spending 3% of the EU‘s
GDP on R&D, to make the European
Union by 2010 „the most dynamic and
competitive knowledge-based economy
in the world“. The goal was also included
in the Europe 2020 Strategy, with a new
deadline for 2020.
Note: R&D expenditures are a subset of
innovation expenditures and generally
used as a proxy
Firms account for most R&D spending, followed by the higher education sector, then the
government sector
What about Flanders?
property
Lecture 1: Innovation & Market Structure
1: Introduction to economics of innovation
Why do economists study innovation?
→ Human welfare and life expectancy has exploded since the industrial revolution
→ As time goes on, we can do more with less resources
→ While still improving our lives and addressing societal challenges
,“Paul Krugman speaks for many, if not most, economists when he says, “Productivity isn’t
everything, but in the long run it’s almost everything.” Why? Because, he explains, “A
country’s ability to improve its standard of living over time depends almost entirely on
its ability to raise its output per worker”—in other words, the number of hours of labor it
takes to produce everything, from automobiles to zippers, that we produce. Most countries
don’t have extensive mineral wealth or oil reserves, and thus can’t get rich by exporting
them. So the only viable way for societies to become wealthier — to improve the
standard of living available to its people — is for their companies and workers to keep
getting more output from the same number of inputs, in other words more goods and
services from the same number of people. Innovation is how this productivity growth
happens.”
– Brynjolfsson and McAfee: The Second Machine Age: Work, Progress, and Prosperity in a
time of Brilliant Technologies (2014)
Some of the key innovations of the last 200 years:
1800 1800 - Electric Battery
1804 - Steam Locomotive
1807 - Internal Combustion Engine
1809 - Telegraph
1817 – Bicycle
1820 1821 - Dynamo
1823 - Braille Writing System
1828 - Hot Blast Furnace
1831 - Electric Generator
1836 - Five-Shot Revolver
1840 1841 - Bunsen Battery
1842 - Sulfuric Ether-based Anaesthesia
1846 - Hydraulic Crane
1850 - Petroleum Refining
1856 - Aniline Dyes
1860 1862 - Gatling Gun
1867 - Typewriter
1876 - Telephone
1877 - Phonograph
1878 - Incandescent Lightbulb
,1880 1885 - Light Steel Skyscrapers
1886 - Internal Combustion Automobile
1887 - Pneumatic Tire
1892 - Electric Stove
1895 - X-Ray Machine
1900 1902 - Electric Air Conditioner
1903 - Wright Biplane
1906 - Electric Vacuum cleaner
1910 - Electric Washing Machine
1914 - Rocket
1920 1921 - Insulin
1928 - Penicillin
1936 - First Programmable Computer
1939 - Atom Fission
1940 1942 - Aqua Lung
1943 - Nuclear Reactor
1947 - Transistor
1957 - Satellite
1958 - Integrated Circuit
1960 1967 - Portable Handheld Calculator
1969 - ARPANET (precursor to internet)
1971 - Microprocessor
1973 - Mobile (portable cellular) telephone
1976 - Supercomputer
1980 1981 - Space Shuttle
1987 - Disposable Contact Lenses
1989 - High Definition Television
1990 - World Wide Web Protocol
1996 - Wireless Internet
2000 2003 - Map of Human Genome
, → Firms invest a lot in R&D and create many new technologies
So, innovation benefits society and also benefits businesses, that use innovation to stay
ahead of the competition and to increase profit
→ But not all is good, we still have work!
→ Key problem:
firms invest less than is socially optimal in innovation. Because society benefits more
from innovation than any individual business and innovation is hard to finance,
especially for small companies
→ Therefore, governments need to intervene
Productivity growth is slowing, even though we invest more in R&D.
What do we spend on innovation?
In 2000, the European Commission set
the goal of spending 3% of the EU‘s
GDP on R&D, to make the European
Union by 2010 „the most dynamic and
competitive knowledge-based economy
in the world“. The goal was also included
in the Europe 2020 Strategy, with a new
deadline for 2020.
Note: R&D expenditures are a subset of
innovation expenditures and generally
used as a proxy
Firms account for most R&D spending, followed by the higher education sector, then the
government sector
What about Flanders?
