1. Inventing Institutions
IT and Public Policy – Oct. 7, 2004
IT Ecosystem
Inventing Institutions
Stephen M. Maurer
Goldman School of Public Policy

2. An IT Ecosystem? What’s An Ecosystem? The Usual Suspects Introduction
• Evolution & History
• Accidents & Optimization
The Usual Suspects
• Patents, Contracts, Grants, Prizes . . .

3. Hybrids New Experiments Introduction Government/Industry
• Contracts + IP
• “CRADAs”
Academic/Industry
• Grants + Patents
• “Bayh-Dole”

4. Hybrids Can Hybrids Do Better? Introduction
• DWL, Innovation, Eliciting Innovation & Agency Problems
• Political Risks

5. Government - Industry
Partnerships

6. Examples Naïve Objection: Government - Industry Partnerships
• CRADAs, SBIR Grants, State Grants, University Grants, Incubators
Naïve Objection:
• Patents + Public Money
= DWL + Agency Problems

7. Why Hybrids? Government - Industry Partnerships
Reason to Believe That . . .
Patents Might Fail
and
Contracts Might Fail

8. Why Patents Might Not Work . . .
Government - Industry
Partnerships
Why Patents Might Not Work . . .
High cost
• Small vs. Big Projects
• Financial markets
2. High risk
• Technical and market risk

9. Why Patents Might Not Work . . .
Government - Industry
Partnerships
Why Patents Might Not Work . . .
Appropriability
• IBM, AT&T and Microsoft?
Insufficient Patent Reward
• (Π•v – c) > 0

10. Iron Triangles & Hidden Taxes Be Skeptical! Why Use Not Contracts?
Government - Industry
Partnerships
A Tough Standard!
Political Hazards
Iron Triangles & Hidden Taxes
Be Skeptical!
Why Use Not Contracts?
• No DWL!

11. Why Contracts Might Not Work . . .
Government - Industry
Partnerships
Why Contracts Might Not Work . . .
Agency Problem – Researchers
• Estimated (v-c)
• Going to the Beach

12. In Other Words . . . Government - Industry Partnerships
1. Government Cannot Monitor Performance
- or -
Government Cannot Pick Winners
• Private Sector Knowledge of (v-c).
• Conventional Wisdom
• Incubators

13. When Patents and Contracts Don’t Work . . . . . . Can Hybrids Help?
Government - Industry
Partnerships
When Patents and Contracts
Don’t Work . . .
. . . Can Hybrids Help?

14. The Goal: (v-c) Government - Industry Partnerships c (v – c) > 0 v
Note:
• (v,c) space c
(v – c) > 0 v

15. Patents: (Π•v - c) > 0 Government - Industry Partnerships c

16. Subsidies: (Π•v + s - c) > 0 Government - Industry Partnerships c
Note:
• Assumes
government
can’t observe
(v-c)
(v – c) > 0 v

17. Subsidies: (Π•v + s - c) > 0 Government - Industry • The SST
Notes
• The SST
Partnerships c
Inefficiency
Subsidy
(v – c) > 0 v

18. Matching Payments Government - Industry Partnerships • Sematech c
Notes
• Sematech
• Venture Star
• The New SST c
No Subsidy
Requested Π
Matching
Payment v

19. Inventing Institutions
IT and Public Policy – Oct. 7, 2004
IT Ecosystem
Inventing Institutions
Stephen M. Maurer
Goldman School of Public Policy