The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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Microeconomics of Technological Innovation
Microeconomics of Technological Innovation
Pages 307-326
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(4) How much effect have patents had on imitation costs and the rate of innovation?
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The results indicated that the amount spent by a firm on R&D was directly related to its rate of productivity growth. Also, he found that the private rate of return from R&D was about 17 percent.
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During the 1980s, studies by Griliches, Link, Nadiri, Scherer, Terleckyj, and myself, among others, provided still further evidence concerning the rates of return from R&D.2 In interpreting the rates of return obtained, both in these studies and in those done before, it is important to distinguish between private rates of return and social rates of return. The private rate of return is the rate of return to the Finn carrying out the R&D; He social rate of return is the rate of return to society as a whole.
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Nathan Associates and one by Foster Associates. Their results, like ours, indicated that the median social rate of return tends to be very high and much higher than the median private rate of return.
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not have immediate commercial objectives." Does basic research, as contrasted win applied research and development, make a significant contribution to an industry's or firm's rate of technological innovation and productivity change? Although the studies cited above indicated that an indusmy's or f~rrn's R&D expenditures have been directly related to its rate of productivity change, they were unable to shed light on this question because no attempt was made to separate basic research from applied research and development.
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In Heir discussions of the innovation process, economists frequently have called attention to the major role played by the costs of imitation, but there has been little or no attempt to measure those costs, to test various hypotheses concerning the factors influencing them, or to estimate their effects. In the first empirical study of this topic (Mansfield et al., 1981)
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. The ratio of the imitation cost to the innovation cost averaged about 0.65, and the ratio of the imitation time to the innovation time averaged about 0.70.
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Patents had a larger impact on imitation costs in ethical drugs than in the other industries sampled, which helps to account for survey results indicating that patents are regarded as more important in ethical drugs than elsewhere. The median estimated increase in imitation cost due to patent protection was about 30 percent in ethical drugs, in contrast to about 10 percent in chemicals and about 7 percent in electronics and machinery Without patent protection, it frequently would have been relatively inexpensive (and quick)
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For about half of the innovations, the firms in this study believed Hat patents had delayed the entry of imitators by less than a few months. Although patents generally increased the imitation costs, they did not increase the costs enough in these cases to have an appreciable effect on the rate of entry.
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Unfortunately, Imt~l very recently no such price indexes existed. Official government statistics in the United States use the GNP deflator to deflate R&D expenditures.
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Similar errors occur in the oil, primary metals, fabricated metal products, rubber, automobile, instruments, and "other" industries. In all of these industries, the GNP deflator results in an overestimation of the 1969-1981 growth of real R&D expenditure of 15 percentage points or more.
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(Among the innovations included in this sample were the shuttle car, trackless mobile loader, and continuous mining machine in the bituminous coal industry, and the byproduct coke oven, continuous annealing, and continuous wide strip mill in the steel industry.) More recently, similar findings have been reported for the chemical and other industries.
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It is also relevant to note that the same sort of process occurs on the international scene: countries that are slow to begin using, an innovation tend to substitute it for older techniques more rapidly than countries that are quick to begin using it. The reasons for this tendency, both at the company and national levels, seem clear enough (Mansfield, 1968a; Nasbeth and Ray, 19741.
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In many important industries, like pharmaceuticals, international technology transfer is being promoted by the fact that companies have been carrying on increasing shares of their R&D overseas. About 10 percent of the R&D camed out by U.S.
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In contrast, older economic models of He process of international technology transfer often tended to assume that innovations were camed out in a single country, generally the United States, and Hat the technology resided exclusively within that country for a considerable period after the innovation's initial commercial introduction. Economists are in the process of replacing these models with others that conform more closely to current conditions.
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In view of the enormous difficulties Mat studies in these areas face, it is not surprising that existing knowledge remains limited. The extent to which economists are able and willing to work with, and learn from, technologists and scientists may play a significant role in determining how successful we are in chipping away at the many perplexing
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U.S. productivity growth by industry, 1947-73.
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1981. Imitation COStS and patents: An empirical study.
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1982. Inter-indusby technology flows and productivity growth.
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