knowledge and economic progress the role of social technologies Thráinn Eggertsson University of Iceland & New York University Prepared for a conference on Dynamics of Institutions in Perspective: Alternative Conceptions and Future Challenges University of Paris, October 3-4, 2008

introduction purpose of paper: Q = f Ψ (A s, A p ; X s, X p ) sections: social science as useful knowledge the relationship between A s and A p in production policy models and beliefs about social technologies empirical case: evolution of modern biotechnology

definitions institutional policy: use of institutions—rules, enforcement—and persuasion to create behavioral regularities (i.e. social mechanisms/system/organization) social technology: how-to knowledge—models of how to use rules, enforcement, and persuasion to create or influence social mechanisms policy models: beliefs held by both rule makers and the ruled about their opportunity sets; involve ideas about social technologies

Ω and λ Mokyr’s useful knowledge The Enlightenment and useful knowledge definitions of Ω and λ Ω : measurement/observations, and natural science λ : how-to practical knowledge, and technology co-evolution of Ω and λ

including social knowledge in Ω and λ Ω s observations, rules of thumb, social science national income accounts; the Penn World Table general equilibrium theory; new institutional economics; managing the commons; political economy; Acemoglu & Robinson’s: Economic origins of dictatorship and democracy λ s how to design and operate social mechanisms legal practices; enforcement; rules of IMF and World Bank; legal transplants; applied macroeconomics comparing relative growth of λ s and λ p over time

the relationship between λ s and λ p in production transaction function & transformation function North and Wallis 1994 Q=f Ψ (A p, A s ; X p, X s, D) Ψ : the social background (exogenous) physical background not of (equally) great interest social organization depends on λ p technical change: λ s (and A s ) are not passive

policy models with λ s of high variance & error policy models : incorporate: endowments, interests, and (uncertain) knowledge of social technologies changing ideas about workable A s : the theory of macroeconomics policy—a case history successful institutional policy: choice of effective rules and enforcement structures coordination of policy models

biotechnology: finding effective Ψ and A s public rules for introducing new property rights involve: rule makers, right holders, and duty bearers and often induce: private rules as complements or substitutes to public measures technical or social change: which comes first?

biotechnology: the takeoff and its implications advances in biological sciences and new instruments lions in the way: control of inputs control of outputs vertical organization of the industry Demsetz’s 1967 insight

biotechnology: the battle of ideas and interests—the courts inputs : Moore v. the Regents of the University of California Supreme Court of California (1998, 1990) who owns valuable cell line established from a patient’s white blood cells without his knowing? outputs : Diamond v. Chakrabarty U.S. Supreme Court (1980) can genetically modified microorganisms be patented? are they a manufacture or a composition of matter?

biotechnology: the battle of ideas and interests—Congress Bayh-Dole Act, 1980 should universities, non-profits, and small businesses be allowed to patent government funded inventions? universities adjust the institutions of research

searching λ for effective A s and A p (1) A p : questions about the effectiveness of major research programs: new drugs for controlling the genetic causes of diseases already billions of dollars invested in research but some scientists question the basic idea

searching λ for effective A s and A p (2) A s : the consequences of expanding IPR a revolution in the Republic of Science? will slow down progress in natural science? will slow down progress in knowledge economy? ideal types versus actual systems private solutions, how important are they? reliable feedback lacking reforming IPR is fine tuning by government agencies practicable?

searching λ for effective A s and A p (3) A s : the effectiveness of for-profit research firms an effective business model? why was the model not used during the 2 nd industrial revolution?

Conclusion: technical change λ s versus λ p How does λ s differ from λ p ? effectiveness of social mechanisms depends on individual policy models, which incorporate personal beliefs the effectiveness of A s depends on Ψ j but the effectiveness of A p does not depend on local context (or only trivially so) testing of As almost always “on-line” tests