In a previous post we discussed the Halo effect, and how the Warehouse was trying to claim it was their own idea. Since then, the Halo effect has taken on special importance as Woolworths Ltd (Aus) and Foodstuffs decided to appeal the Commerce Commission’s decision to refuse to let one of these firms buy the Warehouse.
This cartoon tells us a number of things about the situation. Firstly, for Walmart to put this mans firm out of business, Walmart must have been relatively more efficient (ie, its costs were either lower or the value they added to the product was greater). Secondly, it tells us that the person that used to have a firm is worse off than he was when he did have his firm (as he now only makes enough to shop at Walmart, when before he could afford to go to boutique stores).
We’ve previously blogged about the potential for patent protections to restrict innovation when inventions are sequential. However, Sudipto Bhattacharya and Sergei Guriev suggest on VoxEU that the research we cited by Bessen and Maskin might be misleading. In particular they point out that there is a ‘third way’ that knowledge can be treated.
Rather than patent it or make it public, a firm may choose to simply keep the information private as a trade secret. It can then be licenced to a vendor in return for royalties. Unfortunately, this is less efficient than patents because the vendor will under-invest in development of the technology. Essentially this is because the vendor bears the whole cost of further development but is forced to pay a portion of the revenue generated from that investment to the original inventor in the form of royalties. The authors claim that decreasing patent protections could thus cause more inventions to be kept secret and inefficiently licenced, which reduces total welfare.
As a consequence is that the number of ideas available to firms to develop is probably a concave function of the level of patent protection, with an interior maximum! With no patent protections ideas are kept as trade secrets and handed out under exclusive licences. With full patent protection it is too costly to licence the patent and develop the idea. In both cases the level of innovation will be low. Somewhere in between is the ideal level of intellectual property rights enforcement. So even if innovation is sequential, reducing patent protections has the potential to stifle further invention, although not for the reasons usually cited.
NB. Besson and Maskin’s paper isn’t directly comparable with the Vox paper: the former use complementarities to drive their result while the latter exclude such complementarities and allow for private information. Bhattacharya and Guriev are therefore considering a more general problem than B & M, which is why I describe reliance on the B & M result as misleading: it doesn’t represent the vast majority of industries in which patents are used.
I was just reading the dirty old (note dirty old is a complement from me) Dilbert blog, when I happened upon a post he called Happiness smoothing. Now in this blog post he discusses how individuals choose to interact with people in a way that is inversely related to the persons current success. So if you see a successful person you rip them down, if you see a downtrodden person you help them out (all other things equal). This is similar to tall poppy syndrome and empathy all rolled into one.
It will come as no surprise to anyone that the RBA lifted its cash rate to 6.75%. Glen Stevens statement was relatively hawkish, noting that underlying inflation would likely leave the target band and stating the growth would need to moderate before inflationary pressures would ease.
Most debate surrounding climate change focuses on the best method of suppressing demand for carbon intensive technologies. However, as Hans-Werner Sinn points out at VoxEU, reductions in demand for carbon could result in perverse incentives on the supply side. In particular, the suppliers of oil, coal and other non-renewable, carbon rich resources could face an incentive to increase their rate of extraction.
This arises because of the special nature of exhaustible resources: since there is a finite quantity of the resource to make profits from, the extractor tries to sell it when the price is highest. If carbon reduction policies are successful then we should observe declining demand for these resources over time. Decreasing demand will cause prices to fall and, since the extractors of oil can anticipate the price drops, they’ll try to sell as much now as possible. The increase in supply will cause prices to drop straight away which will trigger countries who have not signed up to Kyoto to consume more carbon rich fuels now.
The two ways this could be avoided are to either force the entire world to conform to the same Kyoto-type standards, or to forcibly restrict the supply of carbon rich fuels. Failure to do either of these things could result in global carbon emissions actually rising as momentum builds behind the environmental movement. Sinn thinks that the only way to cope is to invest heavily in afforestation to offset the extra emissions. Given the rate of global deforestation it can only be hoped that political pressure and reputation effects will be enough to prevent cheap oil flooding the world market. Thankfully oil prices show no signs of diving since the advent of the Kyoto protocol. So far at least…
