Innovation Policy and the Economy, Volume 2

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot


Adam B. Jaffe, Josh Lerner and Scott Stern


Volume 2 in NBER Book Series: Innovation Policy and the Economy, eds. Adam B. Jaffe, Josh Lerner, and Scott Stern, MIT Press, Cambridge MA, 2002


Volume 2 of this series discusses innovation and patent policies.

Policy Relevance

Governments may reform patent policies and disburse broad research subsidies to encourage innovation.

Main Points

  • Usually, if a firm controls a market, there are negative economic consequences. However, if technological change is rapid in a market, control will tend to be temporary and may not require an antitrust intervention.
  • Granting stronger patent rights to innovators will usually encourage innovation. However, when subsequent innovation requires the use of previous inventions, patent rights that are too strong will actually discourage innovation.
  • In Israel, the government subsidized any commercial research project meeting basic criteria rather than providing funds only for favorite types of projects. This novel approach was successful in encouraging technological development but whether it was cost-effective is not clear.
  • A large fraction of the productivity gains from commercial technologies like computers are obtained when the users of technology learn to use it efficiently and perhaps create complementary inventions or processes. It may be appropriate to characterize these “downstream” activities as research when developing tax and accounting policy.
  • Information technology and telecommunications advances in the late 1990s may have lowered a default rate of unemployment and made it easier for economic policymakers to manage monetary and fiscal policy. However, at the same time, technological advances may have increased financial market instability.


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