The Direction of Innovation

Coauthored with Jorge Lemus, Northwestern University
Incentives govern both how much effort society exerts on innovation, as well as which inventions are developed. We present a general and tractable model of the direction of innovation, and fully characterize social optima and firm equilibria. Firms work on suboptimal projects both because they do not capture the full value of follow-on inventions and because they are incentivized to race toward relatively easy steps along a research line. We show that these two sources of "directional inefficiency" imply the impossibility of inducing a first-best research portfolio with an information-constrained social planner. Among second-best policies, we discuss the nature of directional inefficiency caused by patents and prizes, and give applications of these results to researcher reward structures, patent pools, industrial policy and the effect of trade expansion on R&D.

The Meaning of Invention in the Early Airplane Industry

Though the airplane was invented in the United States in 1903, there was essentially no domestic industry by the time it became a commercially viable product in the mid-1910s. This "industrial reversal of fortune" is generally blamed on policy mistakes such as lawsuits resulting from the wide breadth of the Wright Brothers' patent or a lack of government support for the infant American industry. An alternative explanation is proposed using a novel database of airplane-related microinventions: even though the Wright Brothers were first to accomplish the technological achievement of flight, America even in 1903 lagged Europe in many complementary technologies which would become critical to the commercial airplane. By limiting technology transfer from Europe to the United States, the Wrights' lawsuits exacerbated this difference.

Coming soon: Two new papers on the impact of open access mandates on nonacademic invention (joint with Yasin Ozcan, Northwestern University)