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 subsidy policies considered below have two parts: an investment tax credit for the commercial sector, and direct subsidies to universities. The objective is to study the optimal mix of these two subsidies in the two cases that ideas are protectable or not protectable. The study presents a model of idea generation and commercialization and characterizes the optimal subsidy policy when ideas are protectable.
Data Type:	Primary and Secondary data
Secondary Data Sources:	Literature review
Data Collection Methods:	Qualitative Collection Methods Case Study
Data Analysis Methods:	Qualitative Analysis Methods Grounded Theory
Industry(ies):
Country(ies):	United 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 commercialisation 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

• If the Bayh-Dole Act serves the purpose of creating funds for university research, it is because the ideas it turns up are protectable. If ideas are not protectable, the university must depend entirely on direct subsidies for its research budget. If ideas are protectable, the university earns money by commercializing ideas under the Bayh-Dole Act. * Direct subsidies are only optimal if commercialization is not very profi…table.* If direct subsidies are not optimal and not provided, then tax credits for commercialization should be smaller than when direct subsidies are provided.

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:	2
Level of aggregation:	Subsidy policy
Period of material under study:	Not stated

Sample size:	2
Level of aggregation:	Economic model
Period of material under study:	Not stated

Sample size:	2
Level of aggregation:	Scenario
Period of material under study:	Not stated