The Giant’s Shoulders: Suzanne Scotchmer

By Joshua Gans

Posted on January 31, 2014

Suzanne ScotchmerSad news today that Suzanne Scotchmer has passed away. She was a professor of both economics and law at Berkeley and one of the most significant figures in applied economic theory over the past few decades. The loss from cancer came as a shock to many of us in the field. I can hardly imagine attending conferences without her there.

Suzanne’s output was voluminous and covered many areas of economic theory. While I am sure she would be the first to object at this characterisation, while her contributions to economic theory in general were extensive, there is no doubt in my mind that her primary gift to knowledge came from her contributions to the economics of innovation. I’d like to describe that here.

Prior to the 1980s, there were very few complete models of innovation in economics. To be sure, Ken Arrow had founded the field in 1962 (something he could do even on a bad day) but there has been little progress for a couple of decades. To be sure, there had been continual grappling with some basic Schumpeterian questions — namely, what the relationship between innovation and competition was — but it is safe to say that (a) that was unresolved and (b) there is a sense that it was not a first order issue.

That changed in the late 1980s with a paper co-authored with Jerry Green on sequential innovation (eventually published in 1995) and followed up with another in 1996 that really framed the issues of incentives and intellectual property in a new light. What this research line did was see innovation as not just a once-off event but as a cumulative event where innovations followed innovations by others. They were combined with one another and also became a ladder of ever increasing improvements — something recognised by Newton when he claimed that his insights came because he had “stood on the shoulders of giants.”

This posed a problem to how we thought about innovative rewards through the market. A pioneer innovation would enable follow-on innovations and so to encourage their optimal provision, pioneer innovations should have a claim on the rewards to follow-on innovations. But the problem with this was that follow-on innovations required incentives of their own. You simply couldn’t have both. A patent that leveraged into those follow-on innovations may well not encourage more innovation at all. Of course, this meant that the problem could be mitigated by ex ante agreements (to the extent you knew who was following on from you) and integration (a similar issues). But when things were more fluid and there where markets in between intellectual property protection was not a catch all solution. You would want to narrow patent scope and increase patent length to avoid claiming things that were follow-on innovations that did not reduce the economic life of pioneer ones and do the reverse when that was not the case. You would also want to consider carefully the interaction with anti-trust law.

The research that followed on from this pioneering work has defined the economics of innovation since. Suzanne herself drove the process (including her standard text on the subject) but pretty much everyone else in the field has directed their research towards cumulative innovation and its consequences. I tried to count today the number of papers I have written starting with Suzanne’s baseline model and I lost count. Her work continues to be a main driver of research and, indeed, policy work today. We have lost her before her time but fortunately for us all her shoulders remain for us to stand atop of.

The preceding is re-published on TAP with permission by its author, Joshua Gans, Chair of Technical Innovation and Entrepreneurship and Professor of Strategic Management, Rotman School of Management. “The Giant’s Shoulders: Suzanne Scotchmer” was originally published January 31, 2014 on Digitopoly.