试听180秒076：The Copying Problem：Why Markets May Not Offer Enough Reward for Technology

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Hello, Himalaya’s subscribers. My name is Timothy Taylor. 

And today we're going to discuss the copying problem. Why markets may not offer enough reward for technology? Let me start off with a question, but you don't need to worry about it. There's no right or wrong answer here. If you had the choice, would you rather have the average income of one of China's emperors living about 150 years ago late in the Qing Dynasty? Or would you rather have the average income of a person living in one of China's cities today? 

Now, here's what makes the question interesting. If you choose the income of the emperor, you also have to live with the technology of 150 years ago. So there's no electricity. There's probably not running water. It's going to be hard to travel either locally or far away. There are limits on choices of food or music or entertainment. Of course, there's no internet or phone service. Of course, there's no modern health care either，no vaccinations against disease, no antibiotics to fight infection. So that's the choice live with the income of an emperor of a hundred and fifty years ago, or with the average income of someone living in China today. 

But either way, you have to live with the technology of the time. So think it over for just a second. When I ask this kind of question to students, there are always a few who want to be the emperor. And that's of course, fine. There's no right or wrong answer here, but usually a big majority of students would prefer to live in the present. For many people, the technology of the modern world is so amazing that it's worth giving up the standard of living of an emperor from a hundred and fifty years ago. 

And even if you chose the emperor, you probably had to think about it a little bit，right? The next few lectures we're going to discuss the economics of technology, and in this lecture we’ll proceed in three parts. First, we'll talk about the copying problem. Second, the issue of appropriability and third technology as a positive externality. Our first topic is the copying problem. Here's another question for you. Do you think that if there is more competition by lots of firms, it will lead to more technology and innovation? 

It might seem the answer is likely to be yes, but if you think about it, the answer is a little more complicated. The problem is that when markets and innovation operate at the same time, the incentives can conflict with each other. And here's how, if a company starts off with an investment project to develop a new technology and the investment project fails, then the company will still spend a lot of money trying to develop this new idea. But since it failed, the company will have a lower rate of return than its competitors. 

The company could even be driven out of business by this failed attempt. But what if the project succeeds. In a perfectly free and competitive market,if there aren't any restrictions on this practice, then competitors of the firm will simply steal the idea. They'll copy the idea, they'll use the idea themselves. So the result would be that the innovative company had higher expenses in trying to develop this new technology or this new product. But after others copy and imitate the idea, that company has no special gain in revenues, or at least no gain that lasts for very long. 

As a result, even a successful innovator will end up with a lower rate of return than its competitors, because the competitors did not have to pay the cost of developing this new innovation. And so the company that did develop the new idea could still be driven out of business. So here's the problem, in a highly competitive market, if a firm invests a lot in a new technology and fails, the firm is worse off. If a firm invests in a new technology and succeeds, but then the new invention is quickly copied and imitated by competitive firms, the firm also could end up worse off. 

This suggests that if we want to have firms make investments in research and development efforts that lead to new technology, then competition between firms all by itself might not be enough. We need instead to do something so that firms have an incentive to do these kinds of investments. This takes us to our second point, the issue of appropriability. When economists refer to appropriability, they are referring to the idea of how much a producer can get the benefits from an investment or an invention. Without appropriability, businesses won't invest in new products, because they don't think they can get a reasonable rate of return. You might say firms have an incentive to invest in any kind of technology, which will lead to gains that can be appropriated by the firm. If it would lead the gains that can't be appropriated by the firm, then the firm is not going to be that interested. Let me give you a few examples from the history of US inventions to illustrate some of the problems that can arise as firms think about if they will be able to appropriate the gains from an invention or not. 

For a first example, let's go way back in history more than two centuries, back to the 1780s and 1790s. This is just after the United States had its revolutionary war and broke away from Great Britain. And at the time there is a US inventor named Eli Whitney. And Whitney invented all sorts of stuff, machines for making nails, machines for making walking canes and all kinds of things. He found himself living in the southern part of the United States. And the big crop in that area was cotton at the time. 

But cotton was not very profitable. And the reason was the cotton grown in the particular area where he was, had lots of seeds in it, and it took a long time and many workers to pull out all the seeds by hand. Well, Whitney invested and invented a machine to get the seeds out of cotton. It used sort of brushes and hooks and wires, and he called it the cotton gin. The word gin is actually a shortened form of the word engine in English. The cotton gin worked really well. One person using a cotton gin to get the seeds out of cotton was as quick as maybe forty or fifty people doing it by hand. 

So Eli Whitney applied for a patent on his invention. He got one. And so he should be able to appropriate the gains right? Well, that's not what happened. Witness invention was so powerful and so useful that others quickly copied it, and sometimes they made just a few small changes. When Whitney sued them in court for stealing his invention, the court said, “well, I don't see why everyone should have to send payments to Eli Whitney, after all, they built the machine themselves.” Whitney once said “an invention can be so valuable as to be worthless to the inventor, ”and he never bothered to patent another invention in his life. 

Now, you can imagine a current example a little like this, say a pharmaceutical firm invented a great new drug that would help many people a lot, save lots of lives. Would they be able to charge a lot for that drug? Or would it likely to get copied and sold all over the world without the firm getting that return being able to appropriate it? Let's do another example. This is the invention of the laser. An American inventor named Gordon Gould came up with the basic idea behind the laser in 1957. And in fact he was so sure his idea was right. He took his research notebooks where he had written down the idea in November, 1957 and he had a witness sign and date on the notebooks so he could prove when the idea had come to him. 

However, Gould did not know very much about patents and he thought he needed to actually have a working model of a laser before he could get a patent. Now, that wasn't actually true. In the US you can apply for a patent based on an idea. You don't need to have a working machine. But by the time Gould did apply for a patent, other scientists also have ideas about lasers, and they had also applied for patents. So there was a long, long legal battle who deserve the patent. And Gould had to spend a lot of his own money on lawyers. It wasn't until twenty years later in nineteen seventy seven that he actually got a patent for the laser. 

He became a fairly wealthy man. When you think about how much money Gould got compared to the uses of the laser, he didn't actually get much. The laser has an enormous range of uses over time. For example, in medicine, it has to do with various kinds of surgery and removal of tumors or surgery on people's eyes. It's used in chemical research in precision measurement and in navigational instruments. A laser printers use lasers. Lasers are a cutting tool in textiles and metalworking industries. The laser also revolutionized telecommunications and computer networks by allowing information to be carried over fiber optic cable. 

Now what are these examples teach us? We can think about the basic idea. An inventor comes up with an idea and gets a reward, but it's never that simple,right? Sometimes it can take a long time for new products using an invention to arise, as in the case of the laser. Often invention is a group project. Back in the 1950s in the US and in Europe, there were lots of scientists working on the idea of lasers. Sometimes people say a certain idea is in the air, and many of them who helped think about lasers didn't get any special benefit.

Once the laser was invented. That idea of the laser wasn't enough. You need to think of lots of ways to apply it commercially. For example, we needed to invent fiber optic cable for using lasers in telecommunications. So it can be very hard to appropriate all the gains from some innovation that is as basic as the idea of laser. And it needs to be combined with a lot of other inventions before it turns into a product people will buy. So my point here is that even when there are ways of protecting an invention like patents, it can be hard for the inventor to appropriate the gains. 

It's common when talking about invention to talk about research and development, you often hear people say R&D research and development. Well, sometimes the economic incentives to do research are not so good, because it's hard to appropriate the gains and incentives to do development of a certain product much better, because it's more likely to lead to immediate benefits. Let's finish with our third point: technology as a positive externality. In earlier lectures on the economics of pollution, we talked about the idea of an externality. In a market exchange between two parties, a buyer and a seller. Some third party external to that transaction is effected and pollution they were affected negatively. 

But in thinking about externality, technology is just the opposite of pollution. In the case of pollution, those who were external to the transaction, not involved in buying or selling, suffered costs of pollution. But in the case of technology, those who are external to the transaction between the firm that invented the product and the buyer of the product, they benefit. Because the technology spreads out and is used by others. A positive externality means that the economic actor is providing benefits for third parties and not being fully compensated for those benefits, because an inventor is not compensated fully, inventors have less incentive to do innovations than they otherwise would. 

Now we can describe this in terms of private and social costs and benefits. In the case of pollution, the problem was the producer of a good or service, took private costs into account, but did not also need to take social costs into account and thus had an incentive to produce too much pollution. In the case of technology, the issue is that the producer of a good or service that involves new technology looks only at the revenues from direct sales. That producer doesn't take into account the broader social benefits of technology, all the gains others can get, because after all, the inventor cannot appropriate those benefits. And so that inventor has an incentive not to invest as much in technology. 

So this is why, from an economic point of view, the issue of appropriate technology investment where you want more of it, can be viewed as the opposite of the appropriate level of investment in producing pollution where you want to have less pollution. In the situation of negative externality, the goal is to find a way to make someone pay the social costs of pollution and take them into account. In the case of positive externality, the appropriate responses to subsidize or help those who provide the social benefits of innovation.So they receive appropriate support and compensation. 

How do you do this? Well, we'll talk about that in the next couple of lectures. Let's finish this lecture with a few review questions. First, how could competition in markets lead to discouraging investment and innovation? Second, what do economists mean by the appropriability of an invention? And third, why is investment in new technology an example of a positive externality? In the next lecture, we'll talk more about patent, copyright, trademark, and intellectual property. 

I'm Timothy Taylor. Thank you for listening to Himalaya.