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 4, Monday Dec 12, 7-10pm in room 2, Evans). 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

Should Universities accept Tobacco Money?

*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

*Katz and Shapiro

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

Week 14

Nov 30

Innovation in the global economy

Ch 11 

Review Questions

Nature July 15, 2004. Scientific Impact of Nations

*Klaus Eichmann, Koehler’s Invention, Ch. 8 (on the patenting of monoclonal antibodies)

*Malaria Drug Artemisinin YouYou article, Science article