Scotchmer (2011)

Source Details

Scotchmer (2011)
Title:	Ideas and Innovations: Which should be subsidized?
Author(s):	Scotchmer, S
Year:	2011
Citation:	Scotchmer, S. (2011). Ideas and Innovations: Which should be subsidized?. Available at SSRN 1755091.
Link(s):	Definitive , Open Access
Key Related Studies:	Arrow (1962) Kitch (1977) Erkal and Scotchmer (2009) Gans and Murray (2010) Maurer and Scotchmer (2004)
Discipline:	O: Economic Development; Technological Change; and Growth O3: Technological Change • Research and Development • Intellectual Property Rights O31: Innovation and Invention: Processes and Incentives O34: Intellectual Property and Intellectual Capital Z1: Cultural Economics • Economic Sociology • Economic Anthropology
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About the Data
Data Description:	The author presents 5 models of subsidy policies with different levels of ideas' protection in the university system.
Data Type:	Primary data
Secondary Data Sources:
Data Collection Methods:	Qualitative Collection Methods
Data Analysis Methods:	Quantitative Analysis Methods Qualitative Analysis Methods
Industry(ies):	Publishing of books, periodicals and other publishing Cultural education
Country(ies):	Unite States
Cross Country Study?:	No
Comparative Study?:	No
Literature review?:	No
Government or policy study?:	No
Time Period(s) of Collection:	Not stated
Funder(s):	Toulouse Network on Information Technology Alfred P. Sloan Foundation National Science Foundation

Abstract

The Bayh-Dole Act allows universities to commercialize their research. University laboratories therefore have two sources of funds: direct grants from the government and funds from commercialization. In addition to giving direct subsidies to university laboratories, the government also subsidizes the commercial sector, for example, through tax credits. Subsidies to commerce contribute indirectly to the university's research budget, because they increase the profit from commercialization. This paper investigates the optimal mix of direct and indirect subsidies to the university, in a context where the role of university research is to turn up "ideas" for commercial investments, and the role of commerce is to turn the ideas into innovations. It also asks whether there is an argument for protecting "ideas" as well as commercializations, as is authorized by the Bayh-Dole Act.

Main Results of the Study

�* Direct subsidies to universities "prime the pump" the sense that a subsidy increases university spending by more than the subsidy.

• � Because universities maximize research rather than profit, they may overspend on

research. Direct subsidies are only optimal if commercialization is not very profitable. �

• If direct subsidies are not optimal and not provided, then tax credits for commercialization

should be smaller than when direct subsidies are provided.

• A profit-maximizing firm will spend less on idea generation than is optimal, regardless

of subsidies, and less than the research-maximizing university.

• � Direct subsidies to a profit-maximizing firm crowd out its own private spending,

whereas direct subsidies "prime the pump" research-maximizing universities.

Policy Implications as Stated By Author

• The university wants to maximize research rather than profit. This leads to the conclusion that the university might spend more on research than is socially optimal, particularly when commercialization is extremely profitable. In the hands of a profit-maximizing Örm, the spending on idea generation might be unfixably low.

• The aspiration of the Bayh-Dole Act is to protect university-generated knowledge so that the knowledge can be licensed for profit. This aspiration conáicts with a basic economic principle, namely, that it is inefficient to exclude anyone from using a public good such as knowledge (or an idea). However, the model above gives a foundation for why the BayhDole Act might make sense, despite the more traditional view. Free access to ideas leads to inefficient patent races which can be avoided through licensing. At the same time, this defense of the Bayh-Dole Act is based on another second-best arrangement, namely, that the commercialized products are themselves protected

Coverage of Study

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

Sample size:	5
Level of aggregation:	Model of protection
Period of material under study:	Not stated