From A2K Wiki

Contents 1 Notes on the Economics of A2K Panel 1.1 Suzanne Scotchmer 1.2 Eric von Hippel 1.3 Keith Maskus 1.3.1 IPR's as a solution 1.3.2 Evidence on IP regimes and local innovation in DC's 1.3.3 Potential costs for development 1.3.4 Access to basic knowledge 1.3.5 Policy suggestions 1.4 Nagla Rizk 1.4.1 Knowledge and development 1.4.2 A2K Then and Now 1.4.3 Snapshots from Egypt 1.4.4 Alternative Business Models 1.4.5 Concluding Remarks 1.5 Eli Noam 1.5.1 What happens when we get all this A2K? 1.5.2 Why do firms exist? 1.6 Rishab Ghosh 1.7 Questions 1.8 Other notes resources 2 Economics of A2K Resources

Notes on the Economics of A2K Panel

Suzanne Scotchmer

See http://research.yale.edu/lawmeme/modules.php?name=News&file=article&sid=1755

Eric von Hippel

See http://research.yale.edu/lawmeme/modules.php?name=News&file=article&sid=1755

Keith Maskus

• Trade liberalization accompanied by increases in tech protection:
  • reductions in trade and investment protection offer real gains in terms of access to tech embodied in FDI, trade, licensing
  • strengthening of patent regimes, etc. (TRIPS) may complement or diminish these flows.
  • efficiency and growth are complex and depend on market circumstances, timing, etc.
  • fairly clear redistribute effects

• Imported tech is central form of tech change for most DC's
• Tech transfer is costly and faces uncertainty
  • Appropriability problems
  • Difficulties in selling information
  • Problems in signaling origin and quality

IPR's as a solution

So are IPR's a solution to this question? They are one solution, probably the only we have that's available that's recognized in int'l agreements.

There is evidence that transparent and enforceable IP regimes do encourage int'l transfer through imports, FDI, licensing. Quite recently we have a few studies taht suggest there can be some associated export growth. The evidence supports the claim from both aggregate and firm-level econometric studies. Until recently all the studies had been cross-country, and that raises real issues of causality. But microeconomic evidence shows the sensitive response of firms to transparent and well understood IPR regimes.

But this claim is conditional. Correlations have been found in middle-income countries, where the firms are already developing technology. No evidence for least developed countries -- partly because we don't have a lot of data, there isn't much FDI to study, and because the environment for actually transferring techs into those countries is very weak. So when you change the IPR regime that's not sufficient to attract int'l investment.

The extent of impact dependson oether economic characterisitcs: size, proximity, human capital, etc.

There is some evidence of increased backward (vertical) spillovers associated with patents/FDI. When MNC's transfer techs into MDC's they are likely to share their standards and technology with the supplier firms, and that has spillover into domestic firm industry.

Obviously IPR's are endogenous and tend to strengthen with economic interests in selling technology and knowledge goods. e.g., the US has strong IPR's because we have a strong interest in them. But even in the US strengthening took place over time in response to domestic interests in protecting info. We're seeing that now in Korea, Brazil, others, but that will take time.

What happens if you see an economy increasing its patent regime b/c of external pressure? There doesn't appear to be much suggestion that domestic economies that develop patents actually develop incentives for invention. Maybe they do it to attract foreign investment from abroad -- it's a signal.

Evidence on IP regimes and local innovation in DC's

Evidence is scarce from because studies tend to use aggregate data -- we need more micro surveys. Most IPR reforms are recent, or ongoing. IPR's are only one facotr in technical change and competition process. There are also significant causality problems.

Potential costs for development

The most significant is blocking follow-on innovation and restricting imitative competition. This is perhaps the central problem for growth for DC's, because the primary mode of growth is incremental and imitative innovation. If harmonizing makes that process more costly, implications for growth.

Access to basic knowledge

Public investments in basic knowledge (science) have been complementary for industrial development in industrial countires. Evidence on how developing countries may access this basic knowledge is scarce. We don't know much about how commercial development is affected by access to basic knowledge in the rich countries.

There is increasing privatization of scientific results, tools and methods in US and EU, and this might raise transaction costs for access in DC's, and reduce the scope of available scientific and educational materials.

Policy suggestions

IP harmonization is questionable and we need to think about TRIPS flexibilities. TRIPS-plus/WIPO needs to be treated with caution. Reichman and I suggest that a moratorium on IP-plus could permit a period of useful experimentation with TRIPS standards. DCs require some policy space for working with their own flexible systems.

There are good economic arguments for increasing access to basic science -- check out my paper on this.

Nagla Rizk

Knowledge and development

Central to my conception is the role of knowledge for human dignity. The contribution for growth itself is a strong input to dignity and human citizenry. For someone from my part of the world (Egypt) this makes a big difference.

We need to go beyond access and use, to contribution to knowledge. My region needs to work for development of human capital.

There is a wide spectrum of "knowledge."

A2K Then and Now

It is not secret that UK borrowed liberally from more advanced countries early in their history. Copyright came into the picture only when they wanted to protect what they produced. When the industrialized countries were developing, and later when the Asian Tigers were developing, commitment to IP was not as strong.

Developing countries today face huge pressure to adopt IP.

We have more communication pipes, but also more attempts to control the knowledge that flows through the pipes.

The ray of light is new business models: trade in parts, outsourcing, F/OSS.

All of this is happening against harsh socio-cultural, economic and political realities. In Egypt a huge percentage of people are illiterate. In DC's A2K has to have a different meaning. We have low R*D expenditure, poor health conditions, underdeveloped institutions, inefficient policy implementation mechanisms, politically opaque.

Yet, there is significant traditional knowledge, tacit, organizational, cultural, etc.

[Data showing very little expenditure on R&D in Egypt; low FDI; few students involved in science]

Snapshots from Egypt

Passed in a new IPR law in 2002, that was much stricter than previous law. TRIPS starting January 2005, with serious threats to pharma industry. Egypt has strong domestic pharma industry. Serious threat of price of medication increasing.

Microsoft is a major player in the Egyptian market -- it has its office right next to the government office of communication technology. Anecdotally government officials don't want to upset Microsoft with OSS.

Egypt is on the list of countries for the $100 laptop.

Alternative Business Models

We're already committed to TRIPS, so the best we can do is negotiate a better space given the position we're in.

On the other hand there is strong opportunity for the knowledge commons.

Concluding Remarks

Knowledge is an integral part of human development and in the wider sense. So it's important for people to feel they are contributors to global knowledge. A2K therefore becomes very important. I think the best we can do in developing countries is to use flexibility in TRIPs. At the same time, encourage the concept of the knowledge commons.

"Trade not aid" to "Free knowledge along with free trade."

Eli Noam

What happens when we get all this A2K?

More information leads to many types of adjustment. Knowledge has several powerful characteristics: quantity, public goods character, network effects, additivity.

Growth rate of information in US economy is significant. 6% growth rate for scientific knowledge. [ed. How does he figure this out?] Looking at publication of scientific articles helps us capture the rate of information production.

Coping mechanisms: specialization, coffee, longer hours, better technology and adjustments in organizational structure. The typical reader can absorb only 44 bits/second--that's pretty slow.

One of the functions of organization is to increase information processing capacity. But adding people doesn't always increase capacity -- it sometimes undermines it.

Why do firms exist?

Why do firms exist? They are command and control. Noble prize winners have argued that they reduce transaction costs. The major transaction cost for organizations is managing information.

Preindustrial firms looked like a person: they were limited. In the industrial age, centered around machines, the firm metaphor was the machine. Then the metaphor of the mainframe computer. Centralization of information, greater and monitoring and supervision from a distance. The last stage is the networked firm.

We should witness a decomposition of large firms into the transactional model of organization.

Rishab Ghosh

Access is a little misleading because we need people to participate and contribute.

Questions

Benkler: (five questions answered below)

von Hippel: The payback for the French chefs is not just respect. People do make money off their receipes.

Scotchmer: If you have perfect price discrimination, there is no deadweight loss to proprietary ownership. Another version: if you can negotiate every license fee separately, similarly no deadweight loss. But that's a straw man. The whole language of deadweight loss arises from the opposite preumption that you can't do that. I don't want to abolish the concept of deadweight loss on the concept that you can negotiate around it.

Maskus: On global public goods. I jsut did a paper on why it might make sense to have a WTO treaty on access to basic science: There isn't any coordination b/t trade and knowledge policy. The growing privatization may or may not be a good thing of basic science in the US, but it does prevent developing countries from getting spillovers. Then there are specific R&D problems re: medicines, environmental protections, that the current system doesn't address well at all. In medicines we need a way to separate the development from distribution incentives. It's hard to nail down the right incentives and disincentives. It's all still fuzzy.

Rizk: Is IT helpful with education, literacy? Access to the pipes doesn't ensure use or contribution to content. Given weak institutions there is no assurance we can create knowledge. The question is how to strengthen human capacity and improve technology. These though should not be the objective, but the tool to increase human capacity.

Noam: [missed]

Nissenbaum: Maybe the human development issue isn't about law and treaties, just about education.

Mokyr: [missed]

?: [missed]

Rizk: In Egypt we've become much more literate and made great progress in the last decades. But we are not investing enough in human development. Maybe we can use technology to turn this around.

Scotchmer: How do you attribute back to all the chefs who have created the components of the recipes/

von Hippel: Software production happens so quickly. How can patents be useful for this? It is possible to reverse almost anything, so disclosure through patent becomes much less useful.

Love: Much of this panel has not been about access, but how to prevent people from getting access to knowledge. The assumptions are pretty unrealistic. Price discrimination in reality winds up closing out people from drugs. The reality of pricing drugs and academic literature is that people don't get access. My favorite price discrimination story is when BMS asked us to find out whether a cancer patient owned his own house and could liquidate it to pay for treatment.

Rishab started with the idea that knowledge is something you can freely copy. The whole idea of raising above marginal cost completely contradicts the holy grail of economics. You are economists and should be helping people figure out how to get marginal cost pricing.

Scotchmer: I agree.

Grassmuck: The $100 laptop is very centralized, very top-down. Contradicts the network society.

?: ?

Noam: Not sure where Jamie is going but look forward to hearing more.

Reichman: Susan as usual your analysis was brilliant. Given the boundaries of ownership are becoming less clear, it seems like you are moving to a liability rule regime.

Sunder: We should recognize the diversity in these communities and we need to respect everyone who is producing in these communities. I think you need property law to do this. Property law sets the default relationships. e.g., in the French chef communities we need to protect the sous chefs who are often women, but don't get credited.

von Hippel: Assuming we manage to get our law-based systems into better array, then we will face norm-based systems in addition. We don't know another means to build another optimal system. It's your job as a young scholar to figure out how to do this.

Scotchmer: Of course we want marginal cost pricing. But if we have IP then that's not an option, so we have to work within that system. Economists have a whole set of tools that help us choose among incentive systems at that very basic level. See my book, Ch. 2, to see how economists have started to use those tools in this enterprise. We can formalize this question. It's not true that for every problem you should have the same hammer. Of course there are many solutions to these transactions failures. One of them is a liability regime, where you force compulsory licensing. But others within the IP regime are open source.

Maskus: [missed] DMCA is not the best way to provide incentives. We don't yet have an effective system for differentiating prices for things like univesrity-generated patents and essential medicines.

Rizk: Egypt is not as bleak as I have made it out to be.

Noam: I wish more economists would engage. But things are not black and white. If there is a flaw in the economics argument it doesn't mean we should drop an economics methodology.

Other notes resources

Lawmeme notes by Shyamkrishna Balganesh

Economics of A2K Resources

Papers and links here.