Even in societies in which markets were relatively free and developed, there was rarely any proportionality between the contribution of an innovator and the rewards he or she reaped. At least in that sense, the situation was not different from what it is today:
Matt Levine made an interesting point about how to capture more of your invention's value in his Money Stuff newsletter today. Suppose you're a pharmaceutical company making a coronavirus vaccine (e.g. Moderna). You'd like to charge a high price for the vaccine, commensurate with its value, but there'll be huge pressure (from regulators and others) to price it for wide, affordable distribution.
So when Moderna posted good interim trial results, its stock price rose 7%, while a cruise company's stock price rose 20% on (presumably) the same news. This implies a way for Moderna to make more money from its vaccine: buy call options in cruise companies and other companies whose value strongly depends on solving the pandemic. Other inventors should be able to follow the same approach, if the impact of their inventions is big enough.
The less physical matter is involved, the bigger percentage the inventor gets. Selling your software or music directly via web can yield close to 100%.
Perhaps you care if you want that innovation to exist, if your life would be extremely impoverished without that innovation, say, a computer connected to a global network (if it didn't already exist).
Greg Clark says pretty much the same thing in "A Farwell to Alms". His point is that we can't attribute the Industrial Revolution to some great shift in recognition of property rights that allowed investors in technology to get rich, since inventors reaped so little gains. Rather, unskilled laborers did.
> It’s not clear that the alleged benefits [of IP] outweigh the costs either.
How would we possibly measure? Cross-national or cross-temporal comparisons would assume, explicitly or not, that other variables didn't confound our comparison. I would be sufficiently worried about confounds that I would actually consider a deductive approach to provide better evidence.
Why do we need better ways to encourage innovation?
The entire IP system in the US is based on the idea that there isn't enough innovation. But I question that premise. I am not sure what motivates it. All of the methods of encouraging more innovation, like IP rights, come with their own costs. It's not clear that the alleged benefits outweigh the costs either.
In short, it's not clear that a free market, without IP rights, wouldn't provide a near-optimal amount of innovation.
I think the real motivation behind IP rights is that people have a gut-level disgust reaction whenever someone uses an invention that someone else invented. The worry is that the second person is a freerider.
Of course, he is a free rider. Information is hard to keep contained. That's not the freerider's fault. We should be skeptical of attempts to build elaborate structures and systems to make information artificially contained. And we should be skeptical of those who say, because of that disgust reaction, that we need to artificially induce more innovation.
We need better ways to encourage innovation!...The problem is that if the owner of a patent (institution or not) is only capturing 2% of the value of the invention, there will be an underinvestment in research
If innovation is driven by investment in research, and if investment in research is based on the % of value captured by inventors, and if we live in a nice world with seemingly lots of innovation... the conclusion may simply be that one of our assumptions is wrong.
Yes, and if inventors always captured 100% of the surplus, then why exactly would we *care* if stuff gets invented? (Beyond our usual concern for any given person, of course.)
Exactly -- multiple inventors throw kinks into the calculations. For example, you need to subtract off all of the social benefit that occurs when the next-brightest person would have otherwise invented it, when determining the inventor's contribution to social wealth. (Of course, this conflicts with the intuition that, in cases of multiple simultaneous discovery, you divide the social benefit by the number of inventors to get the implicit per-inventor value. Then again, simultaneity implies obviousness...)
Of course, I'm just an armchair amateur here who didn't read the papers, and am obviously arrogant for assuming they wouldn't account for such an obvious consideration. Has anyone read them and verified they thought of this? Robin?
Most innovation seems to be limited by other supporting technologies. With the exception of very simple things like sticky notes or nylon tie-wraps, I can't think of many inventions which were mostly dependent on the inventor. I'm sure their contribution is greater than 2% but it still often seems pretty low.
Mokyr also offered the difference between the British guild system and guilds everywhere else. Since so much of the talk focused on the failures of enlightenment ideology in agriculture, I had trouble interpreting the central claim.
How does the author's definition of innovation correspond to the actual events that increase our PPF or social welfare or whatever? Perhaps we just misidentify which innovations matter.
Inventors’ Two Cents
Matt Levine made an interesting point about how to capture more of your invention's value in his Money Stuff newsletter today. Suppose you're a pharmaceutical company making a coronavirus vaccine (e.g. Moderna). You'd like to charge a high price for the vaccine, commensurate with its value, but there'll be huge pressure (from regulators and others) to price it for wide, affordable distribution.
So when Moderna posted good interim trial results, its stock price rose 7%, while a cruise company's stock price rose 20% on (presumably) the same news. This implies a way for Moderna to make more money from its vaccine: buy call options in cruise companies and other companies whose value strongly depends on solving the pandemic. Other inventors should be able to follow the same approach, if the impact of their inventions is big enough.
The less physical matter is involved, the bigger percentage the inventor gets. Selling your software or music directly via web can yield close to 100%.
Humanity gets the benefits of the invention, the inventor gets the money, every last trillionth of a penny of profit. It's a fair win-win deal.
Perhaps you care if you want that innovation to exist, if your life would be extremely impoverished without that innovation, say, a computer connected to a global network (if it didn't already exist).
There's no real way to measure the benefits.
On a related note, patents are often valued as "?" by economists.
Greg Clark says pretty much the same thing in "A Farwell to Alms". His point is that we can't attribute the Industrial Revolution to some great shift in recognition of property rights that allowed investors in technology to get rich, since inventors reaped so little gains. Rather, unskilled laborers did.
> It’s not clear that the alleged benefits [of IP] outweigh the costs either.
How would we possibly measure? Cross-national or cross-temporal comparisons would assume, explicitly or not, that other variables didn't confound our comparison. I would be sufficiently worried about confounds that I would actually consider a deductive approach to provide better evidence.
Manufacturers and distributors also deserve to get paid. Is 2% an unreasonable cut? What *should* the figure be?
Why do we need better ways to encourage innovation?
The entire IP system in the US is based on the idea that there isn't enough innovation. But I question that premise. I am not sure what motivates it. All of the methods of encouraging more innovation, like IP rights, come with their own costs. It's not clear that the alleged benefits outweigh the costs either.
In short, it's not clear that a free market, without IP rights, wouldn't provide a near-optimal amount of innovation.
I think the real motivation behind IP rights is that people have a gut-level disgust reaction whenever someone uses an invention that someone else invented. The worry is that the second person is a freerider.
Of course, he is a free rider. Information is hard to keep contained. That's not the freerider's fault. We should be skeptical of attempts to build elaborate structures and systems to make information artificially contained. And we should be skeptical of those who say, because of that disgust reaction, that we need to artificially induce more innovation.
We need better ways to encourage innovation!...The problem is that if the owner of a patent (institution or not) is only capturing 2% of the value of the invention, there will be an underinvestment in research
If innovation is driven by investment in research, and if investment in research is based on the % of value captured by inventors, and if we live in a nice world with seemingly lots of innovation... the conclusion may simply be that one of our assumptions is wrong.
Yes, and if inventors always captured 100% of the surplus, then why exactly would we *care* if stuff gets invented? (Beyond our usual concern for any given person, of course.)
Exactly -- multiple inventors throw kinks into the calculations. For example, you need to subtract off all of the social benefit that occurs when the next-brightest person would have otherwise invented it, when determining the inventor's contribution to social wealth. (Of course, this conflicts with the intuition that, in cases of multiple simultaneous discovery, you divide the social benefit by the number of inventors to get the implicit per-inventor value. Then again, simultaneity implies obviousness...)
Of course, I'm just an armchair amateur here who didn't read the papers, and am obviously arrogant for assuming they wouldn't account for such an obvious consideration. Has anyone read them and verified they thought of this? Robin?
Most innovation seems to be limited by other supporting technologies. With the exception of very simple things like sticky notes or nylon tie-wraps, I can't think of many inventions which were mostly dependent on the inventor. I'm sure their contribution is greater than 2% but it still often seems pretty low.
Mokyr also offered the difference between the British guild system and guilds everywhere else. Since so much of the talk focused on the failures of enlightenment ideology in agriculture, I had trouble interpreting the central claim.
I am not so sure of this:
We need better ways to encourage innovation!
Because I am not sure that more motivation will produce more innovation. Just bragging rights are pretty motivating.
How does the author's definition of innovation correspond to the actual events that increase our PPF or social welfare or whatever? Perhaps we just misidentify which innovations matter.