The Economics of Innovation

Economics 124

Lecture MW 8-9:30am, 597 Evans

Suzanne Scotchmer, Professor of economics,

Professor of law, Professor of public policy




Prerequisities: Microeconomics.

Main text (also available in Japanese and Chinese):  Innovation and Incentives (S. Scotchmer, MIT Press 2004).

Course requirements: Attendance and participation (30%) (I will take attendance) and final exam (70%, exam group 13, Dec 15, 8-11am). The exam will be based on weekly review questions, which will be linked to the syllabus on Thursday mornings.


The course starts with a short overview of the institutions that have historically supported innovation, then considers knowledge as a public good, the design of incentive mechanisms such as prizes and intellectual property, different models of cumulative innovation; the relationship of competition to IP licensing and joint ventures, patent and copyright enforcement and litigation, private/public funding relationships; patent values and the return on R&D investment, intellectual property issues arising from direct and indirect network externalities, and globalization.






Other reading and lectures.

If required, there is a star.





Week 1

Aug 29

Sept 1

Institutions for Innovation: A Brief History

Ch 1

Review Questions

*The Case of Japan (R. Aoki)

Week 2,3

Sept 5,7

Sept 12,14

Investing in Knowledge

Ch 2

Review Questions

*Prizes for science

Week 4

Sept 19,21

IP Law basics

Ch 3

Review Questions

Patent Reform Act 2011

* E.A. Crowne Pounds of Flesh, the Merchants of Parma and Ham-Lets

*International Herald Tribune on Google's Belgian news wars

USPTO guidance on mathematical algorithms

Gottschalk v. Benson (supreme court on algorithms)

Week 5

Sept 26,28

Design of IP: length and breadth

The $800m pill

Ch 4

Review Questions

*McDonalds Patent Application on how to make a sandwich and a plant patent

*In re Bilski

Genentech and the Stolen Gene, Innovaro

Week 6/7

Oct 3,5

Oct 10,12

Cumulativeness in Research

Ch 5

Review Questions

*Spitting Image (Inkjet Printer), Sept 19, 2001, The Economist

*Invention of Email, Pretext Magazine 1998.

 *Neem Tree

Insulin Gene Wars

Week 8

Oct 17,19

Antitrust and Licensing

Ch 6

Review Questions

*U.S. v. U.S. Gypsum (factual summary)

Oct 24,26

Open Source as an Incentive Mechanism


*Maurer, Sali & Rai. 2004 Finding Cures for Tropical Disease: Is Open Source the Answer?, Public Library of Science: Medicine 1:56-58.

*Lerner and Tirole, Economics of Technology sharing: Open Source and Beyond

Week 10+

Oct 31

Nov 2

Nov 7


 Ch 7

Review Questions

*Business Software Alliance piracy study (trade organization)

*the Selden automobile patent

*Oracle v SAP complaint (to page 7)

*Wall Street Journal article on Oracle judgment

Week 11+

Nov 9

Nov 14, 16

Role of the Public Sector

Ch 8

Review Questions

*Profits and the university: the case of Ignacio Chapela

from Counterpunch, 2004

Ignacio Chapela and Mexican maize


*Gerth and Solberg, Drug Makers Reap Profits on Tax-Backed Research NYT April 2003

Week 13+

Nov 21,28 not 23

Network effects

Ch 10 

Review Questions

Metcalf's Law

*Surowiecki "In Praise of Third Place" (The modern game market)


Katz and Shapiro

Week 14

Nov 30

Innovation in the global economy

Ch 11 

Review Questions

*Nature July 15, 2004.

Scientific Impact of Nations

Malaria Drug Artemisinin YouYou article, Science article