TABLE OF CONTENTS
Preface - Austan Goolsbee, Benjamin F. Jones
DOI: 10.7208/chicago/9780226805597.002.0008
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Introduction - Benjamin F. Jones, Lawrence H. Summers
DOI: 10.7208/chicago/9780226805597.003.0001
[innovation;investment;tax policy;entrepreneurship;science]
Innovation is often seen as a central force for increasing economic prosperity and improving health. This volume collects new insights on innovation policy. The chapters study first-order policy mechanisms and actionable ideas that can fuel scientific and technological advance. Each analysis is based in the latest empirical evidence, understood within the context of existing policies and institutions. In this chapter, we present an overview of the chapters, organized around five subjects. The first is the social returns to innovation investment, which is central to the case for public support. The second subject is human capital, which can constrain the nation’s innovative capacity. The third subject is scientific grant funding, which occurs mostly outside markets and is closely tied to government financing. The fourth subject is tax policy, which can create incentives for and against innovation investment in the private sector. The final subject is entrepreneurship and ways in which government policy supports new venture creation. (pages 1 - 12)
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Contributors - Austan Goolsbee, Benjamin F. Jones
DOI: 10.7208/chicago/9780226805597.002.0009
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Author Index
Subject Index
Chapter 1. A Calculation of the Social Returns to Innovation - Benjamin F. Jones, Lawrence H. Summers
DOI: 10.7208/chicago/9780226805597.003.0002
[innovation;investment;productivity;growth;returns]
This chapter estimates the social returns to investments in innovation. The disparate spillovers associated with innovation, including imitation, business stealing, and intertemporal spillovers, have made calculations of the social returns difficult. We introduce a new method for calculating the average social returns to innovation. This method integrates across the many types of spillovers that innovative investments create. Second, this chapter considers how the social returns vary according to potentially important but not commonly addressed features of innovation. These features include the roles of diffusion delays, capital embodiment, learning-by-doing, productivity mismeasurement, health outcomes, and international spillovers. Overall, our estimates suggest that the social returns are very large. Even under conservative assumptions, innovation efforts produce social benefits that are many multiples of the investment costs. (pages 13 - 60)
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Chapter 2. Innovation and Human Capital Policy - John Van Reenen
DOI: 10.7208/chicago/9780226805597.003.0003
[innovation;R&D;intellectual property;tax;competition]
If innovation is to be subsidized, a natural place to start is to increase the quantity and quality of human capital. Innovation, after all, begins with people. Simply stimulating the “demand side” through R&D subsidies and tax breaks may only drive up the price, rather than the volume of research activity. By contrast, increasing the supply of STEM human capital can both directly increase innovation and reduce its cost. This chapter examines the evidence on alternative human capital policies for innovation including expanding the homegrown workforce, fostering immigration, boosting universities and reducing barriers to entry into inventor careers, especially for underrepresented groups. We argue that targeting high ability but disadvantaged potential inventors at an early age will have the largest long-run effects. (pages 61 - 84)
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Chapter 3. Immigration Policy Levers for US Innovation and Startups - Sari Pekkala Kerr, William R. Kerr
DOI: 10.7208/chicago/9780226805597.003.0004
[immigration;entrepreneurship;invention;innovation;startups;venture capital;high-tech;H-1B]
Immigrants account for about a quarter of US invention and entrepreneurship, a share that has been increasing for decades. This chapter reviews research on immigrants’ influence on the US economy and the policies that govern how skilled migrants move to America for employment-based purposes. We discuss points of strain in the current system and policy reforms that might increase the rate of innovation and the number of startups due to immigrants in the country. Key areas include adjustments to the allocation of permanent residency visas, adjustments to the H-1B visa program, and the creation of an immigrant startup visa. We consider policies connected to immigrant entrepreneurs and the approaches of other countries to startup visas and estimates of their potential economic impact. (pages 85 - 116)
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Chapter 4. Scientific Grant Funding - Pierre Azoulay, Danielle Li
DOI: 10.7208/chicago/9780226805597.003.0005
[economics of science;innovation incentives;funding systems;grant funding]
This chapter provides an overview of grant funding as an innovation policy tool aimed at practitioners and science policy scholars. We discuss how grants relate to other contractual mechanisms such as patents, prizes, or procurement contracts, and argue that, among these, grants are likely to be the most effective way of supporting early-stage, exploratory science. Next, we provide a brief history of the modern scientific grant and discuss the current state of knowledge regarding several key elements of the design of grant programs: the choice of program scope, the design of peer review, and approaches for creating incentives for risk-taking and translation for grant recipients. We argue that, in making these choices, policymakers might consider adopting a portfolio-based mindset that seeks a diversity of approaches, while accepting that high failure rates for individual projects is in fact part of an effective grant-making program. Finally, increased rigor in the evaluation of grant programs is likely to raise the quality of funded proposals. In particular, randomized controlled trials and other quasi-experimental techniques might enable policymakers to communicate and enhance the impact that these programs have on discovery and innovation, thereby creating a stronger justification for their expansion or continued existence. (pages 117 - 150)
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Chapter 5. Tax Policy for Innovation - Bronwyn H. Hall
DOI: 10.7208/chicago/9780226805597.003.0006
[R&D tax credit;patent box;super deduction;IP box;tax subsidy;innovation]
Innovative activity on the part of firms and individuals is viewed by most economists as a key driver of productivity and economic growth. However there are good arguments that from a social welfare perspective, innovation will be undersupplied by such market agents. One of the ways in which policy makers hope to encourage innovative activity is via the treatment of such activity in the corporate tax system. The two key tax policies that bear directly on innovative activity are various R&D tax credits and super deductions for R&D expense (cost reduction for an innovative input) and reduced taxes on profits from intellectual property (IP) income, commonly known as an IP box. This chapter reviews what we know about these two types of tax policy, one addressed to innovation input choice, and one based on innovation output. In the process I attempt to provide at least partial answers to the following questions: How does taxation affect innovation? Why are there special tax incentives for innovative activity? What are the consequences of different R&D design choices? Do patent boxes spur innovation? How does the introduction of a tax measure in one jurisdiction affect other jurisdictions? (pages 151 - 188)
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Chapter 6. Taxation and Innovation: What Do We Know? - Ufuk Akcigit, Stefanie Stantcheva
DOI: 10.7208/chicago/9780226805597.003.0007
[innovation;taxation;growth;productivity;inventors;patents;competition;firms;efficiency]
Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this chapter, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the US, firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones. (pages 189 - 212)
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Chapter 7. Government Incentives for Entrepreneurship - Josh Lerner
DOI: 10.7208/chicago/9780226805597.003.0008
[venture capital;investment;startups;innovation;new ventures]
In the dozen years since the Global Financial Crisis, there has been a surge of interest on the part of governments in promoting entrepreneurial activity, largely by providing financing. This chapter explores these policies, focusing on financial incentives to entrepreneurs and the intermediaries who fund them. The motivation for these efforts is clear: the well-documented relationships between economic growth, innovation, entrepreneurship and venture capital. Yet despite good intentions, many of these public initiatives have ended in disappointment. I argue that these failures have not simply been a matter of bad luck. Instead, the unfortunate outcomes have reflected the fundamental structural issues that make it difficult for governments to launch sustained successful efforts to promote entrepreneurship over sustained periods. I highlight several critical challenges, and outline two principles that might render these efforts more effective. (pages 213 - 236)
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