The Economics of Innovation (Tuesdays 13:00h – 15:35h, week 40-49)

Faculty
Henrik Lando, Professor, INO, hl.ino@cbs.dk and Thomas Rønde, Professor (MSO), INO, thr.ino@cbs.dk

Course Coordinator
Thomas Rønde, Professor (MSO), INO, thr.ino@cbs.dk

The aim of the course is that the students acquire an advanced knowledge of modern economic theories related to innovation and intellectual property rights. The students should come to understand the details of the theories and be able to analyze related problems using the acquired theoretical (often game theoretic) tools. Furthermore, it is intended that the students become able to analyze and discuss “real life” problems using the theoretical tools covered in the course and basic knowledge about economics.

After having completed the course, students should be able to:

• Solve formal models using tools from mathematical optimization theory and game theory.
• Learn new theories and economic concepts by reading original research, typically published in the major economics journals.
• Analyze formal models that are variations of the models and theories covered in the course and to provide economic intuition for the results obtained.
• Analyze questions related to innovation drawing upon one or more theories and to present this analysis in writing using a scientific and concise language.

Wednesday, week 40, 10:00h - 12:35h
Tuesdays, weeks 41-42, 47-49, 13:00h - 15:35h
Tuesdays, weeks 43-46, 10:00h - 12:35h

[H]: Henrik Lando, [T]: Thomas Rønde

Week 40: Basic concepts [T/H]
i) Static and subgame perfect Nash equilibrium (Powerpoints and Dutta: Chapter 5, 11, 13)
ii) Expected Utility Maximization (Dutta: Chapter 27)
iii) Pareto-optimality, Kaldor-Hicks optimality and the Utilitarian optimum

Week 41: Investing in knowledge [H]
i) Prizes, Contests and Patents as Incentive Schemes (Scotchmer: Chapter 2)
ii) Prizes versus Patents (Shavell and Ypersele)

Week 42: R&D competition [T]
i) Patent races (Scotchmer: Chapter 4)
ii) Choice of R&D Strategy (Cardon and Sasaki, 1998, Cabral)

Week 43: On the optimal design of intellectual property [H]
i) Optimal length and breadth of patents (Chang, 1995, Lando, 2010)

Week 44: Protecting cumulative innovations [H]
i) Cumulative innovation (Scotchmer: Chapter 5)
ii) A model of patents in research tools (Scotchmer and Schankerman)

Week 45: Licensing [T]
i) Design of licensing agreements (Scotchmer: Chapter 6, Gallini)
ii) Patent thickets and patent pools (Scotchmer: Chapter 6)

Week 46: Research joint ventures and technology spillovers [T]
i) Joint ventures (d’Aspremont and Jacquemine)
ii) High-tech clusters (Almeida and Kogut, Fosfuri and Rønde)

Week 47: Optimal contracting for innovation [H]
i) Management of innovation (Aghion and Tirole)

Week 48: The Value of Patents and R&D [Toke/Keld]
i) The private and social value of R&D (Scotchmer: Chapter 9)
ii) The value of patents (Scotchmer: Chapter 9, Trajtenberg)

Week 49: Networks and network effects [T]
i) Network industries and network effects (Scotchmer: Chapter 10)
ii) Network competition (Katz and Shapiro)

The course will consist of lectures. There will be weekly problem sets that the students should solve either alone or in small groups. The students are expected to present solutions to the problems in front of the class.

There is a 3-hours written exam, open-book. Participation in class is required.

Books:

Dutta, P. K. (1999): Strategies and Games – Theory and Practice, Cambridge, Massachusetts: MIT Press.

Scotchmer, S. (2004): Innovation and Incentives, Cambridge, Massachusetts: MIT Press.

Articles: Aghion, P. and J. Tirole (1994): “The Management of Innovation”, The Quarterly Journal of Economics, 109, pp. 1185-1209.

Almeida, P. and B. Kogut (1999): “Localization of Knowledge and the Mobility of Engineers in Regional Networks”, Management Science, 45, pp. 905 – 917.

d’Aspremont C. and A. Jacquemin (1988): “Cooperative and Noncooperative R & D in Duopoly with Spillovers”, The American Economic Review, 78, pp. 1133-1137.

Cabral, L. M. B. (2003): ”R&D Competition When Firms Choose Variance”, Journal of Economics and Management Strategy, 12, pp. 139–150

Cardon, J. H. And D. Sasaki (1998): “Preemptive Search and R&D Clustering”, The RAND Journal of Economics, 29, pp. 324-338.

Chang, H. F. (1995): “Patent Scope, Antitrust Policy, and Cumulative Innovation”, The RAND Journal of Economics, 26, pp. 34-57.

Fosfuri, A. and T. Rønde (2004): “High-tech Clusters, Technology Spillovers, and Trade Secret Laws”, International Journal of Industrial Organization, January 2004, 22, p. 45-65.

Gallini, N. T. and B. D. Wright (1990): “Technology Transfer under Asymmetric Information”, The RAND Journal of Economics, 21, pp. 147-160.

Katz M.L. and C. Shapiro (1986): “Technology Adaption in the Presence of Network Externalities”, Journal of Political Economy, 94, 822-841.

Lando. H: (2010): “Note to Chang’s model of optimal patent breadth”. Teaching note.

Schankerman, M. and S. Scotchmer (2000): “Damages and injunctions in protecting intellectual property”, RAND Journal of Economics, 32, No 1.

Shavell. S and T. V. Ypersele (2001): “Rewards versus Intellectual Property Rights”, The Journal of Law and Economics, 44, pp. 525-547.

Trajtenberg, M. (1990): “A Penny for Your Quotes: Patent Citations and the Value of Innovations”, The RAND Journal of Economics, 21, pp. 172-187.

Deadline: 05.09.2010
Applications should be sent as e-mail to: Shi Hua Chen Kold
Department of Innovation and Organizational EconomicsE-mail: shc.ino@cbs.dk Please remember to state your name, email, Department and University