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THE NATURE AND SCOPE OF ECONOMICS

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mikaël cozic

Khanyisa Soyamba

Paul Hoyningen-Huene

Peter Söderbaum

Mainstream neoclassical economics, as well as heterodox schools, should be regarded as different kinds of ‘political economics’. There is no value-free economics. We therefore need to bring democracy into economics. The present challenge of sustainable development suggests that a new conceptual framework in economics is needed. In this essay, a political and democratic view of individuals, organisations, decision-making, markets, assessment of investment projects and policy options is proposed. The imperative of democracy also implies that the close-to-monopoly position of neoclassical theory and method at university departments of economics has to be replaced by pluralism. There is a continued role for neoclassical theory and method, considering the fact that millions of professionals globally have been indoctrinated in this particular way of understanding efficiency and governance, but the idea that neoclassical theory is best for all purposes has to be abandoned.

Knowledge, Beliefs and Economics

André orléan

Aetazaz Ikram

Simon B Monette

Atlantic Economic Journal

Dieter Bogenhold

Alain Marciano

The closing decades of the twentieth century saw a dramatic increase in interest in the role of philosophical ideas in economics. The period also saw a significant expansion in scholarly investigation into the different connections between economics and philosophy, as seen in the emergence of new journals, professional associations, conferences, seminar series, websites, research networks, teaching methods, and interdisciplinary collaboration. One of the results of this set of developments has been a remarkable distillation in thinking about philosophy and economics around a number of key subjects and themes. The goal of this Companion to Economics and Philosophy is to exhibit and explore a number of these areas of convergence. The volume is accordingly divided into three parts, each of which highlights a leading area of scholarly concern. They are: political economy conceived as political philosophy, the methodology and epistemology of economics, and social ontology and the ontology of economics. The authors of the chapters in the volume were chosen on the basis of their having made distinctive and innovative contributions to their respective areas of expertise. In addition, authors were asked to not only survey the state of the field as they saw it, but also provide statements of their own positions and their perspectives on the field in question and its possible direction of development in the future. We thus hope this volume will serve not only as an introduction to the field, but also stimulate further work and thinking concerning the questions it investigates. Political economy conceived as political philosophy The essays in the first part of this Companion investigate the idea of economics or political economy as political philosophy. This last term should not to be understood in the pejoratively restrictive sense of Rosenberg's (1992) definition of economics as mathematical political science. Rather, it should be taken to refer to the use of specific (namely economic) tools to understand the conditions of social order. This perspective harks back to the founders of economics and their conception of the discipline. Of course some would argue that more than two hundred years of scientific research have carried the discipline away from this conception. In fact, however, and as the issues discussed in the chapters in this section show, the distance that separates political economy in its recent developments from its origins is not that large.

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Collection  29 January 2020

Economics at Nature Research

Research in the economic sciences lies at the heart of addressing global societal challenges and achieving progress towards the UN Sustainable Development Goals. The Nature Research journals welcome the submission of research across the spectrum of economic sciences and allied disciplines. This Collection highlights economics research from a range of Nature Research journals that feature economics as a priority area in their scope. 

• Collection content
• Participating journals

Environmental, energy & climate economics

‘Climate value at risk’ of global financial assets

Modelling shows that twenty-first-century climate change could significantly affect the market value of global financial assets, and suggests that limiting warming to no more than 2 °C would make financial sense to many investors.

• Simon Dietz
• Philip Gradwell

A dynamic analysis of financing conditions for renewable energy technologies

A decrease in the cost of renewable energy is often attributed to technological learning. This study uses 18 years of data from 133 renewable energy projects in Germany, alongside practitioner interviews, to find that changing financing costs, not just technology, are responsible for a significant cost decrease.

• Florian Egli
• Bjarne Steffen
• Tobias S. Schmidt

A top-down approach to projecting market impacts of climate change

A newly developed modelling approach reveals how future global climate change might severely dampen economic growth in poorer countries, while increasing the variability of growth in both poorer and richer countries.

• Derek Lemoine
• Sarah Kapnick

Adverse effects of rising interest rates on sustainable energy transitions

Renewable energy costs have declined in the past but things could change with increasing interest rates. This study shows that in Germany, if interest rates increased to pre-financial crisis levels in 5 years, the levelized cost of solar photovoltaics and onshore wind could rise by 11 and 25%, respectively.

• Ottmar Edenhofer

An inter-model assessment of the role of direct air capture in deep mitigation pathways

Direct Air Carbon Capture and Storage (DACCS) is not considered in Integrated Assessment Models. Here the authors make comparisons using multi-model regarding the role of DACCS in 1.5 and 2 degree scenarios and find that DACCS allows to postpone mitigation and reduce the climate policy costs.

• Giulia Realmonte
• Laurent Drouet
• Massimo Tavoni

Climate clubs and the macro-economic benefits of international cooperation on climate policy

Achieving the Paris Agreement goals may require complementary institutions such as climate clubs. Enhanced technological diffusion and the provision of low-cost climate finance are shown to support the creation of climate coalitions.

• Leonidas Paroussos
• Antoine Mandel
• Zoi Vrontisi

Divestment prevails over the green paradox when anticipating strong future climate policies

Fossil fuel market response to future climate policies could result in divestment in anticipation, or accelerated extraction—the green paradox. This study projects reduced emissions due to anticipation effects prior to policy implementation.

• Christophe McGlade

Economic tools to promote transparency and comparability in the Paris Agreement

Results from four integrated assessment models show countries’ efforts to cut emissions fall towards the lower end of the social cost of carbon distribution, suggesting insufficient levels of ambition to meet the Paris Agreement goals.

• Joseph Aldy
• William Pizer
• Fuminori Sano

Economics of tipping the climate dominoes

Global warming could trigger irreversible regime shifts—‘tipping points’—in the climate system. This study analyses climate policy in the presence of a potential domino effect resulting from the interaction of such tipping points.

• Christian P. Traeger

Effect of global warming on willingness to pay for uninterrupted electricity supply in European nations

Electricity grids are susceptible to damage from climate-related incidents, which can cause power outages. This study shows that the value of uninterrupted electricity supply across 19 EU nations is related to local temperature, with summer power outages becoming more costly with global warming.

• Klaus Moeltner
• Michael Schmidthaler

Electrical appliances moderate households’ water demand response to heat

Better understanding of the determinants of residential water demand is important for Tropical Asian countries. Here the author studied how Singapore household electricity use from appliances modify weather-induced water demand and found that residential water and electricity demand respond differently to heat across different income groups.

• Alberto Salvo

Fuel choice and fuel demand elasticities in markets with flex-fuel vehicles

Substitution across fuels is hard to study because traditional transport technologies are typically single-fuel. Using Swedish data, this study shows that fuel demand elasticities differ across fuels, and drivers exhibit high preference for fossil fuels, hindering the take-up of alternative fuels.

• Cristian Huse

Global non-linear effect of temperature on economic production

Economic productivity is shown to peak at an annual average temperature of 13 °C and decline at high temperatures, indicating that climate change is expected to lower global incomes more than 20% by 2100.

• Marshall Burke
• Solomon M. Hsiang
• Edward Miguel

Large potential reduction in economic damages under UN mitigation targets

If the world can meet the target of limiting global warming to 1.5 °C, economic damage will probably be greatly reduced, especially in poorer countries.

• W. Matthew Davis
• Noah S. Diffenbaugh

Limited emission reductions from fuel subsidy removal except in energy-exporting regions

Contrary to the hopes of policymakers, fossil fuel subsidy removal would have only a small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030.

• Jessica Jewell
• David McCollum
• Keywan Riahi

Mobilizing domestic resources for the Agenda 2030 via carbon pricing

A shift away from fossil fuel subsidies to carbon pricing could generate revenues to finance progress towards the Sustainable Development Goals. This Perspective shows that in many low-income countries, as private sources of finance are limited, revenues from carbon taxes could be a particularly attractive policy option for financing the SDGs.

• Kai Lessmann

Policy design for the Anthropocene

Transgressing planetary boundaries has generated global, ongoing and interconnected problems that represent a real challenge to policy makers. This Perspective sheds light on the complexities of designing policies that can keep human life within the biophysical limits of planet Earth.

• Thomas Sterner
• Edward B. Barbier
• Amanda Robinson

Property rights and the protection of global marine resources

A global study of fishing near Exclusive Economic Zone boundaries shows that these property rights indeed deter unauthorized fishing.

• Gabriel Englander

Quantifying the economic risks of climate change

This Review assesses climate change damage functions, which relate climate variables to economic losses, and how integrated information from impacts, adaptation and vulnerability research could be used to improve estimates of economic risk.

• Delavane Diaz
• Frances Moore

Scope and limitations of drought management within complex human–natural systems

The growing prevalence of drought conditions across the world means that mitigation and adaptation will require accounting for feedback loops between water availability and interventions. The Willamette River Valley in Oregon serves as a case study for how to use coupled human–natural systems to mitigate drought.

• William K. Jaeger
• Andrew J. Plantinga

Spatially explicit valuation of the Brazilian Amazon Forest’s Ecosystem Services

This study spatially maps the economic value of some major ecosystem services provided by the Brazilian Amazon. It also estimates changes in these values under scenarios of degradation and low-impact logging.

• Britaldo Soares-Filho
• Michael Toman

Temperature impacts on economic growth warrant stringent mitigation policy

Integrated assessment models estimate the impact of climate change on current economic output, but not on its rate of growth. This study modifies a standard integrated assessment model to allow climate change to directly affect gross GDP growth rates. Results show that climate change significantly slows down GDP growth in poor regions but not in rich countries, with implications for the level of near-term mitigation.

• Frances C. Moore
• Delavane B. Diaz

The effect of oil and gas price and price volatility on rig activity in tight formations and OPEC strategy

Tight oil and gas extraction is costly and low prices lead to reduction in investments and eventually production. Here, studying the effects of price volatility on active rigs, researchers find the break-even price and show that firms use future and not spot prices to plan exploration and development investment.

• Esmail Ansari
• Robert. K. Kaufmann

The emergence of cost effective battery storage

It is important to examine the economic viability of battery storage investments. Here the authors introduced the Levelized Cost of Energy Storage metric to estimate the breakeven cost for energy storage and found that behind-the-meter storage installations will be financially advantageous in both Germany and California.

• Stephen Comello
• Stefan Reichelstein

The social cost of lobbying over climate policy

Political interests play a key role in the passage of climate policy. This study quantifies that political lobbying reduced the probability of enacting the Waxman–Markey bill in the United States by 13 percentage points, representing US$60 billion in expected climate damages.

• Kyle C. Meng
• Ashwin Rode

The technological and economic prospects for CO 2 utilization and removal

Ten pathways for the utilization of carbon dioxide are reviewed, considering their potential scale, economics and barriers to implementation.

• Cameron Hepburn
• Charlotte K. Williams

Agricultural & natural resource economics

Australia is ‘free to choose’ economic growth and falling environmental pressures

A multi-model framework that accounts for climate, water, energy, food, biodiversity and economic activity in Australia reveals that a sustainable society that enjoys economic improvement without ecological deterioration is possible, but that specific political and economic choices need to be made to achieve this.

• Steve Hatfield-Dodds
• Heinz Schandl
• Alex Wonhas

Environmental market design for large-scale marine conservation

An international arrangement of transferable fishing rights and biomass-based allocation can incentivize establishing Marine Protected Areas while promoting the economy.

• Juan Carlos Villaseñor-Derbez
• John Lynham
• Christopher Costello

Evolution and future of the sustainable seafood market

The decades-long movement for sustainable seafood is centred on a ‘theory of change’ that emphasizes third-party initiatives for certification and consumer signalling. The evolution of that theory, and its potential futures, shows the challenges of management and co-ordination with multiple actors.

• C. A. Roheim

The social inefficiency of regulating indirect land use change due to biofuels

A Low Carbon Fuel Standard seeks to regulate indirect land use change by including its related carbon emissions in the carbon intensity of biofuels. Khanna et al . show the economic cost of abatement achieved by including this factor is much larger than the social cost of carbon.

• Madhu Khanna
• Weiwei Wang
• Evan H. DeLucia

Microeconomics & behavioural economics

A more dynamic understanding of human behaviour for the Anthropocene

To understand and address sustainability problems, a complex model of human behaviour is proposed, one that co-evolves with their context, as opposed to simpler models.

• Caroline Schill
• John M. Anderies
• Maja Schlüter

A potential game approach to modelling evolution in a connected society

Zusai and Wu show that a modelling framework that treats subpopulations as the basic unit of analysis and uses a potential game approach provides a tractable way to study the evolutionary dynamics of behaviours and migration in connected populations.

A synthesis of behavioural and mainstream economics

How do the arguments and insights of neoclassical and behavioural economics relate to one another? Aumann offers a synthesis of the two approaches based on the concept of rule-rationality.

• Robert J. Aumann

Business culture and dishonesty in the banking industry

According to popular opinion, unethical business practices are common in the financial industry; here, the employees of a large, international bank are shown to behave, on average, honestly in a laboratory game to reveal dishonest behaviour, but when their professional identity as bank employees was rendered salient, the prevalence of dishonest behaviour increased.

• Michel André Maréchal

Corrupting cooperation and how anti-corruption strategies may backfire

Muthukrishna et al. experimentally model the cost, causes and cures for corruption, showing that anti-corruption strategies can occasionally backfire.

• Michael Muthukrishna
• Patrick Francois
• Joseph Henrich

Deception and self-deception

Why are people so often overconfident? Schwardmann and van der Weele show that people self-deceive into higher confidence if they have the opportunity to persuade others for profit and that higher confidence aides persuasion.

• Peter Schwardmann
• Joël van der Weele

Exploiting a cognitive bias promotes cooperation in social dilemma experiments

The decoy effect refers to the fact that the presence of a third option can shift people’s preferences between two other options even though the third option is inferior to both. Here, the authors show how the decoy effect can enhance cooperation in a social dilemma, the repeated prisoner’s dilemma.

• Marko Jusup
• Stefano Boccaletti

Extortion can outperform generosity in the iterated prisoner’s dilemma

The zero-determinant (ZD) strategies discovered by Press and Dyson overturned several decades of consensus about the iterated prisoner's dilemma. Here, the authors provide the first empirical evidence in support of Press and Dyson’s theory, by showing that knowledge of the opponent and the length of the interaction can facilitate the Generous and Extortionate ZD strategies as predicted.

• Zhijian Wang
• Yanran Zhou

Heterogeneity in banker culture and its influence on dishonesty

In contrast to a previous study in which only bankers showed increased dishonesty when reminded of their profession, this study found that such reminders induced some dishonesty in bankers, although the effect was not significant, and that this effect was not unique to bankers.

• Barbara Fasolo

Intrinsic honesty and the prevalence of rule violations across societies

To test whether there is a relationship between the level of national corruption and the intrinsic honesty of individuals, a behavioural test of the honesty of people from 23 countries was conducted; the authors found that high national scores on an index of rule-breaking are linked with reduced personal honesty.

• Simon Gächter
• Jonathan F. Schulz

Normative foundations of human cooperation

Fehr and Schurtenberger show that the prevailing evidence supports the view that social norms are causal drivers of human cooperation and explain major cooperation-related regularities. Norms also guide peer punishment and people have strong preferences for institutions that support norm formation.

• Ivo Schurtenberger

Payoff information hampers the evolution of cooperation

Knowledge of payoffs has been assumed to be weakly beneficial for the emergence of cooperation between humans. Here the authors provide evidence to the contrary, showing that during interactions in a competitive environment access to information about payoffs leads to less cooperative behaviour.

• Steffen Huck
• Johannes Leutgeb

Peer punishment promotes enforcement of bad social norms

Punishment by peers can enforce social norms, such as contributing to a public good. Here, Abbink and colleagues show that individuals will enforce norms even when contributions reduce the net benefit of the group, resulting in the maintenance of wasteful contributions.

• Klaus Abbink
• Lata Gangadharan
• John Thrasher

People prefer coordinated punishment in cooperative interactions

Over two experiments and a replication, Molleman and colleagues show that, in cooperative interactions, people prefer to sanction their free-riding peers jointly with others rather than individually.

• Lucas Molleman
• Felix Kölle

Real-time feedback promotes energy conservation in the absence of volunteer selection bias and monetary incentives

A natural field experiment found that real-time feedback on energy consumption while showering led to an 11.4% reduction in energy use in a random sample of hotel guests, demonstrating the potential for activity-specific feedback as a cost-effective and scalable conservation strategy.

• Verena Tiefenbeck
• Anselma Wörner
• Thorsten Staake

Reciprocity and the tragedies of maintaining and providing the commons

Gächter et al. use experiments and simulations to show that low levels of cooperation (the ‘tragedy of the commons’) are systematically more likely in maintaining a public good than in providing a new one, even under identical incentives.

• Simone Quercia

Rethinking fast and slow based on a critique of reaction-time reverse inference

In cognitive neuroscience, it is common practice to use reaction time data to infer whether decisions are intuitive or deliberate. Here the authors demonstrate that they can replicate, eliminate and reverse previously reported correlations between selfishness and reaction time.

• Ian Krajbich
• Björn Bartling

Slow and deliberate cooperation in the commons

Using experimental behavioural methods, this study shows that time pressure leads to worse decisions over the sustainable management of collectively held natural resources.

• Chris Brozyna
• Todd Guilfoos
• Stephen Atlas

Social image concerns promote cooperation more than altruistic punishment

Cooperation requires individuals to sacrifice individual rewards for group benefits. Here, Grimalda, Pondorfer and Tracer show in a foraging society of Papua New Guinea that social image building is a more powerful motivator of social cooperation than altruistic punishment.

• Gianluca Grimalda
• Andreas Pondorfer
• David P. Tracer

Public, labour, development & welfare economics

Climate change through a poverty lens

The economic impact of climate change has typically been considered at regional or national levels. This Perspective assesses impacts at household level to determine effects on poverty and the poor. It shows how rapid development could reduce these impacts.

• Stephane Hallegatte
• Julie Rozenberg

Economic analysis of scientific publications and implications for energy research and development

Government support for energy technology is vital, but quantifying its effects downstream is complicated. Towards this end, David Popp analyses scientific publication data resulting from public money, exploring the time lags between funding and new publications and the resulting policy implications.

Effects of Fairtrade on the livelihoods of poor rural workers

Distinguishing types of farm workers, an analysis of Fairtrade certification in the cocoa sector of Cote d’Ivoire finds that the standard improves the livelihoods of cooperative workers but makes little difference for wage labourers working on small farms.

• Eva-Marie Meemken
• Jorge Sellare

Equity and the willingness to pay for green electricity in Germany

The cost of green electricity is unfairly distributed, with consumers paying more while industry actors are subsidized. Here, the authors find that reducing the inequity in cost burden by abolishing exemptions increases consumer acceptance of these costs.

• Mark A. Andor
• Manuel Frondel
• Stephan Sommer

Expanding the social science of happiness

The social science of happiness needs to recognize the importance of social connection and prosocial action for human well-being and become more interdisciplinary with greater collaboration, especially among social scientists and policymakers.

• John F. Helliwell
• Lara B. Aknin

Explaining the prevalence, scaling and variance of urban phenomena

Gomez-Lievano and colleagues develop a new theory of scaling in cities — how the prevalence of phenomena such as education and crime changes with population size — by unifying models of economic complexity and cultural evolution.

• Andres Gomez-Lievano
• Oscar Patterson-Lomba
• Ricardo Hausmann

How natural field experiments have enhanced our understanding of unemployment

Natural field experiments combine randomized control with an absence of observer effects. However, they have only been used to investigate key labour market phenomena such as unemployment since the early 2000s. This paper reviews the literature and summarizes the insights natural field experiments contribute to the field of unemployment.

• Omar Al-Ubaydli
• John A. List

Inequality and visibility of wealth in experimental social networks

Wealth inequality and wealth visibility can potentially affect overall levels of cooperation and economic success, and an online experiment was used to test how these factors interact; wealth inequality by itself did not substantially damage overall cooperation or overall wealth, but making wealth levels visible had a detrimental effect on social welfare.

• Akihiro Nishi
• Hirokazu Shirado
• Nicholas A. Christakis

Land degradation and poverty

The interaction between land degradation and the livelihoods of the poor is complex and conditioned by important economic, social and environmental factors. These factors are also in part responsible for the limited success of economic growth policies to reduce poverty.

• Jacob P. Hochard

Making carbon pricing work for citizens

Ambitious carbon pricing reform is needed to meet climate targets. This Perspective argues that effective revenue recycling schemes should prioritize behavioural considerations that are aimed at achieving greater political acceptance.

• David Klenert
• Linus Mattauch
• Nicholas Stern

Measurement of inequality using household energy consumption data in rural China

Inequality in China ranks as one of the highest in the world. Using household energy consumption data, this study shows that deriving energy from biomass, use of energy for space heating and cooking, and intraregional differences are major contributors to consumption inequality in rural China.

• Xinye Zheng

Rank reversal aversion inhibits redistribution across societies

Research has shown that people dislike inequality. However, in a cross-cultural experiment, Zhou and colleagues show that, from a young age, people are unwilling to redistribute resources between individuals if this reverses an existing hierarchy.

• Benjamin Ho
• Xinyue Zhou

The impact of human health co-benefits on evaluations of global climate policy

Aerosol impacts have not been comprehensively considered in the cost-benefit integrated assessment models that are widely used to analyze climate policy. Here the authors account for these impacts and find that the health co-benefits from improved air quality outweigh the co-harms from increased near-term warming, and that optimal climate policy results in immediate net benefits globally.

• Noah Scovronick
• Mark Budolfson
• Fabian Wagner

The public costs of climate-induced financial instability

Increasingly, financial institutions will be exposed to climate risks that will exacerbate the negative economic impacts of climate change. An agent-based integrated assessment model is used to analyse climate impacts on the global banking system, finding an increase in banking crises and public bailout costs.

• Francesco Lamperti
• Valentina Bosetti

Using sales data to assess cooking gas adoption and the impact of India’s Ujjwala programme in rural Karnataka

India’s Pradhan Mantri Ujjwala Yojana is a programme that seeks to transition poor households away from unclean cooking fuels. In this Analysis, the authors use liquefied petroleum gas sales data to assess the adoption of cooking gas and the impact of this programme in a district of rural Karnataka.

• Abhishek Kar
• Shonali Pachauri
• Hisham Zerriffi

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It’s cheaper to preserve the Amazon than we might think

"The cattle need ladders to graze here.” That is what my wife’s relatives used to tell her after they moved to the Amazon rainforest. She visited their farm when she was 13, and the planted grass was taller than she was. Grass grows tall there because of the substantial amount of nutrients left on the ground immediately after deforesting...

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What America’s history of mass migration can teach us about attitudes to immigrants

International migration is one of the most pervasive social phenomena of our times. According to recent UN estimates, as of 2017, there were almost 260 million migrants around the world...

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Out with the old?

Innovation is a primary driver of economic growth and of the rise in living standards, and a substantial body of research has been devoted to documenting the welfare benefits from it.

Climate and the inequality of nations

Countries grow richer as one moves away from the equator, and the same is generally true if one looks at differences among regions within countries. However, this was not always the case...

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Economic Research Working Papers

The WIPO Economic Research Working Paper Series includes economic and statistical studies that are the outcome of professional research. Such research may be conducted in preparation of WIPO reports or as part of self-standing analytical projects.

The papers included in this Series typically report on research in progress and are circulated in a timely manner for discussion and comment. The views expressed in them are those of the authors and do not necessarily reflect those of WIPO or its member states .

How Robust is the R&D - Productivity Relationship? Evidence from OECD Countries Economic Research Working Paper No. 1

Author(s): Mosahid Khan, Kul B. Luintel, Konstantinos Theodoris; Publication year: 2011

The authors examine the robustness of research and development (R&D) and productivity relationship in a panel of 16 OECD countries. They control for fifteen productivity determinants predicted by different theoretical models. R&D and human capital emerge robust in all specifications making them universal drivers of productivity across nations. Most other determinants are also significant. Productivity relationships are heterogonous across countries depending on their accumulated stocks of knowledge and human capital.

Basic, Applied and Experimental Knowledge and Productivity: Further Evidence Economic Research Working Paper No. 2

Author(s): Mosahid Khan, Kul B. Luintel; Publication year: 2011

Analyzing a novel dataset, the authors find significantly positive effects of basic, and applied and experimental knowledge stocks on domestic output and productivity for a panel of 10 OECD countries. This updates the work of, among others, Mansfield (1980), Griliches (1986) and Adams (1990), at an international setting.

Disembodied Knowledge Flows in the World Economy Economic Research Working Paper No. 3

Author(s): Suma Athreye, Yong Yang; Publication year: 2011

The authors outline the main trends in the growth of disembodied technology trade vis-a-vis international licensing and the trade in research and development and technical services. They show that there is considerable heterogeneity across countries in the form of technology trade that countries specialize in and also suggest these are related to underlying appropriability conditions and intellectual property rights regimes.

The State of Patenting at Research Institutions in Developing Countries: Policy Approaches and Practices Economic Research Working Paper No. 4

Author(s): Pluvia Zuniga; Publication year: 2011

This study discusses the opportunities and challenges offered by patents to foster technology transfer from government funded research institutions in developing countries. It presents a review of policy frameworks and recent policy changes aimed to foster academic patenting and technology transfer in low- and middle-income countries. It then analyzes patenting activities by universities and public research organizations and compares these trends with respect to high-income countries. This analysis is complemented with an assessment of the current state of patenting and technology commercialization practices in a selected group of technology transfer offices.

Getting Patents and Economic Data to Speak to Each Other: An “Algorithmic Links with Probabilities” Approach for Joint Analyses of Patenting and Economic Activity Economic Research Working Paper No. 5

Author(s): Travis J. Lybbert, Nikolas J. Zolas; Publication year: 2012

In this paper, the authors describe and explore a new algorithmic approach to constructing concordances between the International Patent Classification (IPC) system and industry classification systems that organize economic data. This ‘Algorithmic Links with Probabilities’ (ALP) approach incorporates text analysis software and keyword extraction programs and applies them to a comprehensive patent dataset. The authors conclude with a discussion on some of the possible applications of the concordance and provide a sample analysis that uses their preferred ALP concordance to analyze international patent flows based on trade patterns.

What Makes Companies Pursue an Open Science Strategy? Economic Research Working Paper No. 6

Author(s): Markus Simeth, Julio Raffo; Publication year: 2013

This paper explores the motivations of firms that disclose research outcomes in a scientific format. Besides considering an internal firm dimension, the authors focus particularly on knowledge sourcing from academic institutions and the appropriability regime using a cost-benefit framework. The analysis provides evidence that the access to important scientific knowledge imposes the adoption of academic disclosure principles, whereas the mere existence of collaborative links with academic institutions is not a strong predictor. Furthermore, the results suggest that overall industry conditions are influential in shaping the cost-benefit rationale of firms with respect to scientific disclosure.

How Does Geographical Mobility of Inventors Influence Network Formation? Economic Research Working Paper No. 7

Author(s): Ernest Miguelez; Publication year: 2013

The goal of this paper is to assess the influence of spatial mobility of knowledge workers on the formation of ties of scientific and industrial collaboration across European regions. Co-location has been traditionally invoked to ease formal collaboration between individuals and firms, since tie formation costs increase with physical distance between partners. In some instances, highly-skilled actors might become mobile and bridge regional networks across separate locations. This paper estimates a fixed effects logit model to ascertain precisely whether there exists a ‘previous co-location premium’ in the formation of networks across European regions.

Measuring the International Mobility of Inventors: A New Database Economic Research Working Paper No.8

Author(s): Carsten Fink, Ernest Miguelez; Publication year: 2013

This paper has two objectives. First, it describes a new database mapping migratory patterns of inventors, extracted from information included in patent applications filed under the Patent Cooperation Treaty. It explains in detail the information contained in the database and discusses the usefulness and reliability of the underlying data. Second, the paper provides a descriptive overview of inventor migration patterns, based on the information contained in the newly constructed database.

The Economics of Copyright and the Internet: Moving to an Empirical Assessment Relevant in the Digital Era Economic Research Working Paper No. 9

Author(s): Sacha Wunsch-Vincent; Publication year: 2013

Technology and the Internet have triggered important changes to how creative works are created and accessed, and how creators and copyright-based industries generate their revenues. The authors reassess the economics of copyright in the light of these changes. After providing an introduction to the economics of copyright, they analyze the changes to the baseline copyright model triggered by the new technological landscape. Then, they assess the empirical economic work on copyright so far, and suggest future avenues of research and related data needs.

The Informal Economy, Innovation and Intellectual Property: Concepts, Metrics and Policy Considerations Economic Research Working Paper No. 10

Author(s): Jeremy de Beer, Kun Fu, Sacha Wunsch-Vincent; Publication year: 2013

The authors connect concepts, definitions and data regarding the informal economy, innovation, and intellectual property in order to establish a framework for further qualitative and quantitative research and the improvement of public policies in respect of these issues.

The Use of Intellectual Property in Chile Economic Research Working paper 11

Author(s): María José Abud, Carsten Fink, Bronwyn Hall, Christian Helmers; Publication year: 2013

This study describes patterns and trends of intellectual property (IP) use in Chile, drawing on a new database containing all patent, trademark, utility model, and design filings received by the Chilean IP office over the period 1991-2010. Among other things, the study offers insights into the drivers of filing growth, the origin of filings, the distribution of applicants, the importance of different applicant types, the share of filings by different economic sectors, the relevance of IP bundles, and the patenting behavior of Chilean applicants overseas.

Exploring the Worldwide Patent Surge Economic Research Working Paper No. 12

Author(s): Carsten Fink, Mosahid Khan, Hao Zhou; Publication year: 2013

This paper provides an analysis of global patenting trends using the most comprehensive data currently available. Among other things, it finds that subsequent patent filings – additional filings of the same invention, mostly in additional countries – contributed considerably to the growth in filings worldwide, pointing to globalization as one important driver of filing growth. However, no single factor can fully explain the marked increase in the use of the patent system.

Brands as Productive Assets: Concepts, Measurement, and Global Trends Economic Research Working Paper No. 13

Author(s): Carol A. Corrado, Janet X. Hao; Publication year: 2014

The paper looks at brands from an economic point of view. It defines concepts; analyzes the conditions under which brands are long-lived productive assets and contribute to economic growth; and reviews the measurement of investment in brands. It finds that a productive role for brands is consistent with assumptions used in the economic analysis of innovation. Finally it offers an analysis of economic development that suggests branding rises with growth.

An "Algorithmic Links with Probabilities" Concordance for Trademarks For Disaggregated Analysis of Trademark and Economic Data Economic Research Working Paper No. 14

Author(s): Travis J. Lybbert, Nikolas J. Zolas, Prantik Bhattacharyya; Publication year: 2014

The authors propose an ‘Algorithmic Links with Probabilities’ (ALP) approach to match Trademarks (TMs) data to economic data and enable these data to speak to each other. Specifically, they construct a NICE Class Level concordance that maps TM data into trade and industry categories forward and backward. This concordance allows researchers to analyze differences in TM usage across both economic and TM sectors. In this paper, the authors apply this ALP concordance for TMs to characterize patterns in TM applications across countries, industries, income levels and more. They also use the concordance to investigate some of the key determinants of international technology transfer by comparing bilateral TM applications and bilateral patent applications.

Diaspora Networks, Knowledge Flows and Brain Drain Economic Research Working Paper No. 15

Author(s): Ajay Agrawal; Publication year: 2014

The paper summarizes key findings from the literature on how distance, relationships and ethnic ties influence knowledge flows, and describes a model that relates emigration and the diaspora to knowledge flows. It recaps a key study that reports evidence of a link from the diaspora and knowledge flows to home country manufacturing productivity. The study summarizes the ways in which intellectual property (IP) protection may influence knowledge flow patterns through incentives (market for ideas) and disincentives (anticommons). Finally, it speculates on how diaspora knowledge flows and IP may alleviate developing country low-productivity equilibria (“poverty traps”) caused by an underinvestment in specialized human capital.

U.S. High-Skilled Immigration, Innovation and Entrepreneurship: Empirical Approaches and Evidence Economic Research Working Paper No. 16

Author(s): William R. Kerr; Publication year: 2014

High-skilled immigrants are a very important component of U.S. innovation and entrepreneurship. Studies regarding the impact of immigrants on natives tend to find limited consequences in the short-run, while the results in the long-run are more varied and much less certain. Immigrants in the United States aid business and technology exchanges with their home countries, but the overall effect that the migration has on the home country remains unclear. Little is known about return migration of workers engaged in innovation and entrepreneurship, except that it is rapidly growing in importance.

Inventor Data for Research on Migration and Innovation: A Survey and a Pilot Economic Research Working Paper No. 17

Author(s): Stefano Breschi, Francesco Lissoni, Gianluca Tarasconi; Publication year: 2014

This paper discusses the existing literature on migration and innovation, with special emphasis on empirical studies based on patent and inventor data. Other sources of micro-data are examined, too, for comparative purposes. A pilot database, based on patent filings at the European Patent Office is presented. It contains information on individual inventors, including their country of residence and of origin. Preliminary evidence suggests that immigrant inventors contribute to innovation not only in the United States, but also in selected European countries, where they often rank among the most productive individuals.

The Egyptian Information Technology Sector and the Role of Intellectual Property: Economic Assessment and Recommendations Economic Research Working Paper No. 18

Author(s): Knut Blind, Tim Pohlmann, Florian Ramel, Sacha Wunsch-Vincent; Publication year: 2014

This paper discusses the state of innovation in the Egyptian information technology sector (IT) and seeks to identify the current and potential role of intellectual property (IP) for this sector as well as the links between IP and innovation and foreign direct investment. The paper proposes IP-related policies which could contribute to promoting domestic innovation.

The Emergence of An Educational Tool Industry: Opportunities and Challenges for Innovation in Education Economic Research Working Paper No. 19

Author(s): Dominique Foray, Julio Raffo; Publication year: 2014

This paper describes the emergence of a population of firms specialized in developing and commercializing educational tools and instructional technologies, and discusses whether this trend can be seen as part of the solution to the innovation deficit and cost disease problems in this sector.

International Patenting Strategies of Chinese Residents: An Analysis of Foreign-Oriented Patent Families Economic Research Working Paper No. 20

Author(s): Mila Kashcheeva, Sacha Wunsch-Vincent, Hao Zhou; Publication year: 2014

This paper analyzes Chinese patenting abroad by using WIPO’s foreign-oriented patent family dataset and a respective enterprise questionnaire. It finds that by the turn of the century China emerged as major actor in terms of international patenting. While this is changing rapidly, the share of Chinese patents which get filed abroad is still a fraction of total patents filed at home and most patents still also only target one foreign IP office. Chinese foreign-oriented patent families are concentrated in a few technology fields, and a few Chinese firms are responsible for a large share of total Chinese patents filed abroad.

Defining and Measuring the “Market for Brands”: Are Emerging Economies Catching Up? Economic Research Working Paper No. 21

Author(s): Carl Benedikt Frey, Atif Ansar, Sacha Wunsch-Vincent; Publication year: 2014

Markets for brands, as defined in this paper, play an important but underappreciated economic role in today’s global economy. The ability to use Market for Brands allows companies to diversify their business; access competences; and generate new revenues without substantial investments. This paper defines and provides a taxonomy for different brand markets then analyzes the economic rationale of such markets. It also assesses the relative importance of the different brand-related transaction types in developed and emerging economies alike.

Trademarks Squatters: Evidence from Chile Economic Research Working Paper No. 22

Author(s): Carsten Fink, Christian Helmers, Carlos Ponce; Publication year: 2014

This paper explores the phenomenon of “trademark squatting” – a situation in which someone other than the original brand owner obtains a trademark on a brand. The authors develop a model that shows how squatting results from market uncertainty that leads brand owners to rationally forgo registering trademarks, creating opportunities for squatting. They create an algorithm to identify squatters in the Chilean trademark register and show empirically that squatting is a persistent and systematic phenomenon. Using data on trademark oppositions, the authors find that squatting leads brand owners that have been exposed to squatting to “over-protect” their brands by registering disproportionately many trademarks and covering classes other than those directly related to their products and services. Trademark squatting, therefore, creates a strategic, albeit excessive, response by brand owners which inflates trademark filings.

The Use of Intellectual Property in Brazil Economic Research Working Paper No. 23

Author(s): Vivian Barcelos, Marina Filgueiras Jorge, Bruno Le Feuvre, Felipe Lopes, Sergio Medeiros Paulino de Carvalho, Vera Pinheiro, Julio Raffo, Leonardo Ribeiro; Publication year: 2014

This study describes patterns and trends of intellectual property use in Brazil, drawing on a new statistical database (BADEPI).

Sources of Biopharmaceutical Innovation: An Assessment of Intellectual Property Economic Research Working Paper No. 24

Author(s): Michael S. Kinch, Julio Raffo; Publication year: 2015

An analysis of new, FDA-approved molecular entities reveals dynamism in terms of new innovation. An assessment of the first patent for each drug reveals that the pharmaceutical industry, particularly large, established companies in North America, tend to dominate the field. Whereas inventors continue to found biotechnology companies at a steady rate, recent trends suggest these inventors more often come from the private sector.

Breakthrough innovations in aircraft and the intellectual property system, 1900-1975 Economic Research Working Paper No. 25

Author(s): David C. Mowery; Publication year: 2015

Modern commercial aircraft are complex products that incorporate innovations in technologies ranging from advanced materials to software and electronics. Although commercial aircraft assuredly qualify as a transformative innovation, in fact today’s commercial aircraft are the result of a process of incremental innovation and improvement that dates back more than a century. A great many of these improvements and incremental innovations originated from government-supported R&D programs sponsored by the military services or government research laboratories. The adoption of commercial-aircraft innovations within many industrial economies, including the United States, also has been influenced by government regulation of air transportation. This paper provides a historical characterization of the innovation and record of technical progress in US commercial aircraft during the 1900-1975 period. It identifies the sources of support for innovation and technological adoption, and examines the origins and impacts of “breakthrough innovations” on the overall evolution of the global commercial aircraft industry. The paper also assesses the role of patents in these important innovations.

Intellectual property rights and pharmaceuticals: The case of antibiotics Economic Research Working Paper No. 26

Author(s): Bhaven N. Sampat; Publication year: 2015

The development and diffusion of antibiotics contributed to large improvements in human health and living standards. The antibiotic revolution also spawned the modern pharmaceutical industry. This paper reviews the development of the early antibiotics, and the roles of intellectual property rights (in particular, patents) in their development and diffusion.

Breakthrough technologies – Semiconductor, innovation and intellectual property Economic Research Working Paper No. 27

Author(s): Francesca Guadagno, Sacha Wunsch-Vincent, Thomas Hoeren; Publication year: 2015

Semiconductor technology is at the origin of today’s digital economy. Its contribution to innovation, productivity and economic growth in the past four decades has been extensive. This paper analyzes how this breakthrough technology came about, how it diffused, and what role intellectual property played historically.

3D printing and the intellectual property system Economic Research Working Paper No. 28

Author(s): Stefan Bechtold; Publication year: 2015

Three-dimensional (3D) printing – or “additive manufacturing” – technologies differ from traditional molding and casting manufacturing processes in that they build 3D objects by successively creating layers of material on top of each other. Rooted in manufacturing research of the 1980s, 3D printing has evolved into a broad set of technologies that could fundamentally alter production processes in a wide set of technology areas. This report investigates, from the perspective of an intellectual property scholar, how 3D printing technology has developed over the last few decades, how intellectual property rights have shaped this breakthrough innovation and how 3D printing technologies could challenge the intellectual property rights system in the future.

Economic growth and breakthrough innovations: A case study of nanotechnology Economic Research Working Paper No. 29

Author(s): Lisa Larrimore Ouellette; Publication year: 2015

This paper examines the role of intellectual property and other innovation incentives in the development of one field of breakthrough innovation: nanotechnology. Because nanotechnology is an enabling technology across a wide range of fields, the nanotechnology innovation ecosystem appears to be a microcosm of the global innovation ecosystem. Part I describes the nature of nanotechnology and its economic contribution, Part II explores the nanotechnology innovation ecosystem, and Part III focuses on the role of IP systems in the development of nanotechnology.

Breakthrough technologies – Robotics, innovation and intellectual property Economic Research Working Paper No. 30

Author(s): C. Andrew Keisner, Julio Raffo, Sacha Wunsch-Vincent; Publication year: 2015

Robotics technology and the increasing sophistication of artificial intelligence are breakthrough innovations with significant growth prospects and the potential to disrupt existing economic and social facets of everyday life. Few studies have analyzed the developments of robotics innovation. This paper closes this gap by analyzing how innovation in robotics is taking place, how it diffuses, and what role intellectual property plays.

Measuring Creativity: Learning from Innovation Measurement Economic Research Working Paper No. 31

Author(s): Intan Hamdan-Livramento, Julio Raffo, Stéphane Lhuillery; Publication year: 2016

There is a growing interest in broadening the measurement scope of innovation and considering “creative” activities, meaning that the usual indicators of innovation satisfy neither scholars nor policy makers. Conceptually, there is not much difference between innovative and creative activity: but to what extent are current measures that capture innovation relevant for creativity? Can the new measures for creativity benefit from the experience accumulated through R&D and innovation? Our article provides insights and lessons learned from using measures of innovative activities for scholars who are interested in capturing creative activities. We underscore the difficulties faced when measuring innovation and draw some parallels of these difficulties with the efforts undertaken to measure creativity.

R&D, Scale Effects and Spillovers: New Insights from Emerging Countries Economic Research Working Paper No. 32

Author(s): Kul B. Luintel, Mosahid Khan; Publication year: 2016

There has been a concomitant rise in R&D and the rate of economic growth in emerging countries. Analyzing a panel of 31 emerging countries, we find convincing evidence of scale effects which make government policies potent for long-run growth. This contrasts sharply with the well-known findings of Jones (1995a). Innovations show increasing returns to knowledge stock, implying that the diminishing returns assumed by some semi-endogenous growth models might not be generalized. International R&D spillovers raise the innovation bar. The observed growth rates of emerging economies appear in transition therefore their growth rates may recede with the passage of time.

Identifying the gender of PCT inventors Economic Research Working Paper No. 33

Author(s): World Intellectual Property Organization, Gema Lax Martínez, Julio Raffo, Kaori Saito; Publication year: 2016

This paper analyzes the gender of inventors in international patent applications. We compile a worldwide gender-name dictionary, which includes 6.2 million names for 182 different countries to disambiguate the gender of PCT inventors. Our results suggest that there is a gender imbalance in PCT applications, but the proportion of women inventors is improving over time. We also find that the rates of women participation differ substantially across countries, technological fields and sectors.

Identifying and ranking the world's largest clusters of inventive activity Economic Research Working Paper No. 34

Author(s): Kyle Bergquist, Carsten Fink, Julio Raffo; Publication year: 2017

This paper presents an empirical approach to identifying and ranking the world’s largest clusters of inventive activity on the basis of patent filings. Patent data offer rich information on the locality of innovative activity. Many researchers have already made use of these data to study individual clusters or selected clusters within a particular region. Our approach goes beyond existing work by identifying and ranking innovation clusters on an internationally comparable basis.

Ideas production and international knowledge spillovers: digging deeper into emerging countries Economic Research Working Paper No. 35

Author(s): Kul B. Luintel, Mosahid Khan; Publication year: 2017

Research and development (R&D) activities of emerging countries (EMEs) have increased considerably in recent years. How important are knowledge transfers from developed countries and other emerging countries? This wide-ranging but rigorous macro-level study of 31 EMEs provides some much-needed evidence.

Measuring the income to intangibles in goods production: a global value chain approach Economic Research Working Paper No. 36

Author(s): Wen Chen, Reitze Gouma, Bart Los, Marcel P. Timmer; Publication year: 2017

Today’s production processes are fragmented across countries and industries. Intangibles play an important role, but their measurement is elusive. This paper proposes a new empirical framework to measure factor incomes in production that spans industries and countries.

A missing link in the analysis of global value chains: cross-border flows of intangible assets, taxation and related measurement implications Economic Research Working Paper No. 37

Author(s): Thomas S. Neubig, Sacha Wunsch-Vincent; Publication year: 2017

Understanding cross-border flows of disembodied knowledge, often associated with intellectual property (IP), is essential to analyzing how modern economies operate. This paper documents how available data to document these IP flows are distorted by various factors, including tax planning by multinational enterprises. It finds that tax-induced mismeasurement could be more than 35%, and greater for individual countries particularly high-tax-rate countries.

Intangible assets and transactions within multinational enterprises: implications for national economic accounts Economic Research Working Paper No. 38

Author(s): Dylan G. Rassier; Publication year: 2017

Transactions involving intangible assets within multinational enterprises impose challenges for national economic accountants. In light of the challenges, recent research at the United States Bureau of Economic Analysis aims to identify areas for improving the treatment of multinational enterprises in national economic accounts. This paper summarizes the work and demonstrates implications for gross domestic product – the most widely cited measure in national economic accounts – of the United States.

The powerful role of intangibles in the coffee value chain Economic Research Working Paper No. 39

Author(s): Luis F. Samper, Daniele Giovannucci, Luciana Marques Vieira; Publication year: 2017

The paper describes: a) the coffee industry and its GVC structure; b) the role that intangible assets play in value creation from both the supply and demand perspective; and c) the current and potential role of intellectual property tools in creating and retaining value, as well as providing economic upgrade options.

Understanding the dynamics of global value chains for solar photovoltaic technologies Economic Research Working Paper No. 40

Author(s): Maria Carvalho, Antoine Dechezleprêtre, Matthieu Glachant; Publication year: 2017

China dominates the global solar photovoltaic (PV) value chain, while 15 years ago the demand and supply were located in few Western economies. In this process, the PV industry has seen a booming demand, drastic price decreases along the supply chain, and fierce competition among surviving companies. This paper seeks to understand how this spatial shift has occurred and its drivers, with a specific focus on the role of intangible assets and intellectual property.

Intangible assets and value capture in global value chains: the smartphone industry Economic Research Working Paper No. 41

Author(s): Jason Dedrick, Kenneth L. Kraemer; Publication year: 2017

This report uses data on individual smart phones as well as industry data to identify which smartphone firms capture the most value. It finds that Apple captures most of the industry profits, thanks to its high prices, large profit margins and the volume of iPhone sales worldwide. Apple’s success is explained as a result of its ability to develop its own intellectual property (IP) and take advantage of IP created by suppliers through a strategy of selling only a few models at high prices compared to competitors.

Enhancing Innovation in the Ugandan Agri-Food Sector: Robusta Coffee Planting Material & Tropical Fruit Processing Economic Research Working Paper No. 42

Author(s): Dick Kawooya, Gracious Diiro, Sacha Wunsch-Vincent, Travis J. Lybbert; Publication year: 2018

Uganda's innovation performance in recent years has consistently outpaced other low-income and Sub-Saharan African countries. Though encouraging, this nascent progress will only benefit the broader Ugandan population if policy makers address specific constraints in the innovation systems of the critical agri-food sector, which is hampered by low productivity and profitability. In this report, we explore these constraints using an agricultural value chains framework with particular focus on the Robusta Coffee Planting Material Pipeline and tropical fruit processing.

Intellectual property use in middle income countries: the case of Chile Economic Research Working Paper No. 43

Author(s): Bronwyn H. Hall, Carsten Fink, Christian Helmers; Publication year: 2018

We analyze the use of intellectual property (IP) by firms in Chile over the decade 1995-2005 as the then middle-income country experienced rapid economic growth of 4.7 percent per year. We use a novel dataset that contains a combination of detailed firm-level information from the annual manufacturing census, information on firms’ innovative activities from Chile’s innovation surveys, and firms’ patent, industrial design, and trademark filings with the Chilean IP office. We use these data to look at how IP use by companies has changed over time and analyze the determinants of IP use, in particular first-time use. We find that sales growth prompts first-time use of patents and trademarks, though such use does not change the growth trajectory of firms nor does it improve their total factor productivity. We also find that trademark use is associated with new-to-the-world product innovation, which suggests that branding may be an important mechanism to appropriate returns to innovation in a middle-income country like Chile.

Measuring innovation in energy technologies: green patents as captured by WIPO's IPC green inventory Economic Research Working Paper No. 44

Author(s): Kunihiko Fushimi, Kyle Bergquist, Lorena Rivera León, Ning Xu, Sacha Wunsch-Vincent; Publication year: 2018

We analyze inventions in green energy technologies over the period 2005-2017. We use a novel dataset, making use of the IPC Green Inventory of the World Intellectual Property Organization (WIPO) to analyze four broad categories of green energy technologies including alternative energy production technologies, energy conservation technologies, and green transportation. We use these data to look at how patent families and PCT international patent applications have evolved in this field in recent years. We find that energy innovation-related patenting has first expanded exponentially up until 2013, both in terms of the total number of patent families and PCT international patent applications in green energy technologies. Yet this period of accelerated growth in the number of published green energy patents has been followed by a period of deceleration—even a slow decline. Although most green energy technologies have seen a downward trend in the annual number of patents published since 2012, the decline has been most pronounced in nuclear power generation technologies and alternative energy production technologies. The latter notably include renewable energy technologies, such as solar and wind energy, and fuel cells. In contrast, patents in energy conservation technologies and green transportation technologies have continued to grow, but at a slower pace.

Innovation in the pharmaceutical and medical technologies industries of Poland Economic Research Working Paper No. 45

Author(s): Rafał Wisła, Tomasz Sierotowicz; Publication year: 2018

This paper analyzes the recent economic and innovation trends of the health industries in Poland. The health industries have observed remarkable growth since entering into the EU. While the pharmaceutical industry faces some economic slowdown since 2011, the medtech industry shows substantial dynamism for its small size. The Polish health industry has still much to do to improve its innovation status. However, the observed trend of the innovation dynamics is cause for optimism. Polish firms in the health industries are increasingly innovating and extracting economic results from these innovations.

Innovativeness of the Polish health sector: a patent analytics study Economic Research Working Paper No. 46

Author(s): Dorota Szlompek, Elżbieta Balcerowska, Karol Gabryel, Małgorzata Kozłowska, Michał Gołacki; Publication year: 2018

The Polish health related patenting increased rapidly in the last decade making Poland the top CEE economy. Still, most of the filings remain only national, making Poland just a small share of the EU total and relatively less specialized than other EU countries. A limited number of higher education applicants accounted for 42 percent of patents and utility models, with a clear specialization in pharmaceutical technologies. Most private applicants were SMEs and individuals specialized in medtech. The innovative activity is concentrated in a few provinces and cities. Polish health related innovation is a collaborative although mostly domestic effort. Poland’s pharmaceutical specialization is on non-biological preparations (42%) and new chemical compounds (31%); while the medtech specialization is in diagnosis and surgery (34%) and prostheses, stents and orthopedic (18%).

Innovation in the Polish health sector: A quality assessment Economic Research Working Paper No. 47

Author(s): Żaneta Pacud; Publication year: 2019

This working paper aims to present the specifics of innovation in the Polish health industry through the prism of the experiences and opinions of a representative group of 42 companies from both the pharmaceutical and medtech sectors. Through analysis of in-depth interviews, it aims to illuminate the legal, economic and social mechanisms and phenomena that determine innovation in this sector. The survey examines which areas of the Polish health sector are most innovative, the understanding of innovation that prevails in the sector, and the characteristics of R&D activities carried out there. Subsequently, the study explores the general impact of intellectual property, and particularly of patent law on innovation, in the Polish health sector. Finally, it surveys the other economic and legal instruments currently stimulating innovation and how legal regulations and governmental policy could be modified to create an optimal pro-innovation environment. The conclusions include short legal and factual background of innovation in the Polish health sector, the summarized results of the conducted analysis and final comments concerning the level and culture of innovation within the examined industry.

The economic analysis of patent litigation data Economic Research Working Paper No. 48

Author(s): Christian Helmers; Publication year: 2018

Enforceability of patent rights is the backbone of the patent system. We review differences in the way patent litigation systems are designed across jurisdictions. We also discuss challenges in collecting and accessing patent litigation data as well as their economic analysis. We provide some descriptive analysis of patent litigation in the U.S. and UK for the period 2010-2016 and 2007-2013, respectively. We also analyze administrative post-grant validity challenges in form of the inter partes review in the U.S. and oppositions at the EPO.

Creators’ Income Situation in the Digital Age Economic Research Working Paper No. 49

Author(s): Alexander Cuntz; Publication year: 2018

The digital transformation imposes both opportunities and risks for creativity and for creative employment, with implications for trends in income levels and the distribution of income. First, we consider skill-biased technological change as a determinant of income and labor market outcomes in the arts. Arguably, the IT revolution has changed the demand for certain skills, with creative occupations being more in demand than general employment. Second, we consider declines in the costs of generating new works and artistic experimentation due to digital technologies, and their effect on the barriers to entry in labor markets. Third, we touch upon the rise of online contract labor in certain creative professions as a determinant of income. Here, online platforms can change creators’ access to work opportunities and it may alter the way income is distributed. We find that wage trends for creative workers in the digital age outperform general trends in the population: based on various data sources and various ways to identify creators, we see creators losing less or even gaining a better income position in relative terms. From a policy perspective, results do not lend support to the idea that creators’ income situation has systematically worsened with the rise of the internet and its intermediaries. Evidence on changing distributions of income is ambiguous as trends differ from one country to the next.

Unpacking predictors of income and income satisfaction for artists Economic Research Working Paper No. 50

Author(s): Alexander Cuntz, Angie L. Miller; Publication year: 2018

The stereotype of the “starving artist” is pervasive in modern Western culture, but previous research on artists and income is mixed. The goal of this study is to explore how several demographic variables, along with self-reported behaviors and artistic activities associated with non-monetary and monetary motivators, predict income and income satisfaction for artists.Using unique survey data on current working artists in the United States, we provide empirical evidence on substantial reputational rewards and rewards from altruistic behaviors as important sources of artists’ utility and, arguably, sources of their motivation to create new works. Moreover, we find that the evidence on “procedural” utility from working in the arts is less straightforward, and we find that many artists are pooling and diversifying financial risks on household levels. Overall, quantitative findings indicate that artists may have different criteria and conceptualizations when it comes to income, and they may derive value from their work in a variety of ways aside from income.

Submarine Trademarks Economic Research Working Paper No. 51

Author(s): Amanda F. Myers, Andrea Fosfuri, Carsten Fink, Christian Helmers; Publication year: 2018

Companies use trademarks to protect their brands from outright imitation or competition by confusingly similar products. However, publication of trademark filings by the trademark office discloses information about a firm’s new product or service. This creates a trade-off between legal protection and disclosure of information. We analyze the trade-off through the lens of “submarine trademarks” in the U.S. – submarine trademarks are trademarks whose publication and hence disclosure to the public is strategically delayed. This is achieved through a particular international filing strategy that is often combined with the use of shell companies to further conceal the trademark filing. These submarine strategies allow companies to benefit from legal trademark protection while reducing the risk of inadvertent disclosure of information. We provide the first systematic evidence of submarine trademarks and explore both their determinants and their effectiveness in reducing the disclosure of information.

Immigrants' Contribution to Innovativeness: Evidence from a Non-Selective Immigration Country Economic Research Working Paper No. 52

Author(s): Alexander Cuntz, Katharina Candel-Haug, Oliver Falck; Publication year: 2018

The economic consequences of migration are hotly debated and a main topic of recent political movements across Europe. We analyze Polish immigration in the context of the 2004 enlargement of the European Union and find a positive and significant spillover effect of the immigrants on the number of local inventors in German counties in 2001-2010. For causal identification, we exploit a historical episode in the Polish migration history to Germany before the fall of the Iron Curtain and construct a shift-share instrument. Our results differ from findings for high-skilled migration to the United States, which is particularly interesting as Polish immigration to Germany was not based on selection by qualification in our period of analysis.

Technology Appropriation and Technology Transfer in the Brazilian Mining Sector Economic Research Working Paper No. 53

Author(s): Ana Claudia Nonato da Silva Loureiro, Domenica Blundi, Felipe Veiga Lopes, Gustavo Travassos Pereira da Silva, Marina Filgueiras Jorge, Sergio Medeiros Paulino de Carvalho, Vitoria Orind; Publication year: 2019

This paper focuses on the competitive dynamics, strategic challenges, technological needs and institutional innovation-promoting arrangements in Brazil’s mining sector in order to identify the ways in which mining firms and mining equipment, technology and services suppliers (METS) handle innovation appropriation and technology transfer in the country. As the main sample consisted of resident and non-resident companies, the key technological areas of mining-related patenting in Brazil and the main patent stakeholders have been identified. The analysis of technology transfer among firms and to other mining industry stakeholders, mainly universities, drew on import contracts and highlighted the role played by foreign METS. A case study of Vale S.A., Brazil’s largest mining enterprise, has been included, with emphasis on Vale’s strategies to mitigate external challenges and to meet technological needs through innovation.

Innovation and IP Rights in the Chilean Copper Mining Sector: The Role of the Mining, Equipment, Technology and Services Firms Economic Research Working Paper No. 54

Author(s): Claudio Bravo-Ortega, Juan José Price Elton; Publication year: 2019

This analysis of intellectual property (IP) protection practices among mining equipment, technology and services suppliers (METS) in Chile’s copper mining sector adds to a body of literature that has hitherto focused on high-income countries. It is based on data collated from an online survey of resident METS and on semi-structured interviews of executives from mining companies and suppliers, including two universities. The main conclusion is that, although METS appear to be innovative in relation to the mining sector and the economy as a whole, only a few use intellectual property rights (IPRs) to protect their innovations. The main reasons for this finding appear to be the cost and expected complexity of the registration process. Another noteworthy finding is the view that Chile has the requisite legal IPR expertise, but commercial capabilities (expertise in IPR-based innovation management and business plans) are much less developed. In the last section, four case studies of product and process innovation by four mining suppliers add some interesting insights to the analysis.

Innovation in the Mining Sector and Cycles in Commodity Prices Economic Research Working Paper No. 55

Author(s): Mr. David Humphreys, Mr. Julio Raffo, Ms. Alica Daly, Ms. Giulia Valacchi; Publication year: 2019

This paper analyses the evolution of innovation in the mining sector and how this innovation responds to the economic environment, in particular to changes in commodity prices. For this purpose, we combine commodity price data with innovation data as proxied by patent filings extracted from a novel unit record database containing comprehensive patent and firm level data for the mining sector from 1970 to 2015. We include patents registered both by mining companies and mining equipment, technology and service (METS) firms. With a multi-country panel analysis, we find that innovation in the mining sector is cyclical. Innovation increases in periods of high commodity prices while decreasing during commodity price recessions. Our results suggest that innovation increases mostly with long price cycle variations, while mostly unaffected by medium and short cycles. METS related innovation seem the driving force of this mechanism. In contrast, countries specializing in mining industries are found to be slower in reacting to price changes.

Measuring Innovation in the Mining Industry with Patents Economic Research Working Paper No. 56

Author(s): Mr. Julio Raffo, Ms. Alica Daly, Ms. Giulia Valacchi; Publication year: 2019

Traditionally, the mining sector has been considered a slow innovator compared to other industries, like the manufacturing or pharmaceutical industries. However, we observe an upsurge in the innovation activity of the mining industry in the first half of the 2000s. During this period, mining innovation started to increase rapidly after periods of stagnation and downward trends. To conduct and in-depth investigation of the global trends and patterns behind this structural change in mining innovation, we formulated a general search strategy to identify patent activity in this sector. The strategy is repeatable over time and in multiple databases. It enabled us to produce a dataset of patents in mining and mining-related technologies. Using this newly-created database we identified at the basis of the structural change a switch away from refining technologies into exploration and environmental technologies probably explained by the took over of the so-called 4th Industrial Revolution. The types of actors active in the mining innovation also changed across time: there are now many more individuals, research centers and universities innovating in mining and relatively less companies. Finally, the country composition in the pool of mining innovation activity has radically changed with the appearance of China on the global scene starting from early 2000.

The Geography of Innovation: Local Hotspots and Global Innovation Networks Economic Research Working Paper No. 57

Author(s): Riccardo Crescenzi, Simona Iammarino, Carolin Ioramashvili, Andrés Rodríguez-Pose, Michael Storper; Publication year: 2019

Through successive industrial revolutions, the geography of innovation around the globe has changed radically, and with it the geography of wealth creation and prosperity. Since the Third Industrial Revolution, high incomes are increasingly metropolitan, leading to a renewal of inter-regional divergence within countries. These metropolitan areas are also hotbeds of innovation. At the same time, global networks for the production and delivery of goods and services have expanded greatly in recent decades. The globalization of production is mirrored in the globalization of innovation. This paper argues that the emerging geography of innovation can be characterised as a globalized hub-to-hub system, rather than a geography of overall spread of innovation. Although much attention has been given to explaining the rise and growth of innovation clusters, there is as yet no unified framework for the micro-foundations of the agglomeration and dispersion of innovation. In addition, there appear to be strong links between growing geographical inequality of innovation and prosperity, particularly within countries. This is particularly relevant in the context of declining overall research productivity, which could be driving growing geographical concentration. All in all, there is a rich agenda for continuing to investigate the relationship between the geography of innovation, economic development and income distribution.

Tied In: The Global Network of Local Innovation Economic Research Working Paper No. 58

Author(s): Ernest Miguelez, Julio Raffo, Christian Chacua, Massimiliano Coda-Zabetta, Deyun Yin, Francesco Lissoni, Gianluca Tarasconi; Publication year: 2019

In this paper we exploit a unique and rich dataset of patent applications and scientific publications in order to answer several questions concerned with two current phenomena on the way knowledge is produced and shared worldwide: its geographical spread at the international level and its spatial concentration in few worldwide geographical hotspots. We find that the production of patents and scientific publications has spread geographically to several countries, and has not kept within the traditional knowledge producing economies (Western Europe, Japan and the U.S.). We observe that part of this partial geographical spread of knowledge activities is due to the setting up of Global Innovation Networks, first toward more traditional innovative countries, and then towards emerging economies too. Yet, despite the increasing worldwide spread of knowledge production, we do not see the same spreading process within countries, and even we see some increased concentration in some of them. This may have, of course, important distributional consequences within countries. Moreover, these selected areas also concentrate a large and increasing connectivity, within their own country to other hotspots, and across countries through Global Innovation Networks.

Global Roots of Innovation in Plant Biotechnology Economic Research Working Paper No. 59

Author(s): Gregory D. Graff, Intan Hamdan-Livramento; Publication year: 2019

Innovation in agricultural biotechnology has the potential to increase agricultural productivity and quality, ultimately raising incomes for farmers across the world. Advances in the field have produced crops that are resistant to certain diseases, that result in higher yield than before, that can grow in extreme soil conditions, such as in arid and salty environments and even those that are infused with nutrients. Moreover, the technology has been hailed as a potential solution to addressing global issues of hunger and poverty. It therefore follows that innovation in this field finds strong support from the public sector as well as the private sector. This paper traces the evolution of the global innovation landscape of plant biotechnology over the past couple of decades. Drawing on information contained in patent documents and scientific publications, it identifies the sources of innovation in the field, where they are located and demonstrates how these innovative centers connect to one another. There are three important findings. First, the global innovation network of agricultural biotechnology showcases a prime example of how innovation activities spread to many parts of the world. Second, while there are more countries participating in the innovation network, most of these innovation centers are concentrated in the urban areas and away from the rural where most of the transgenic crops are harvested. Third, the increasing need for collaboration between the private and public sectors to bring the invention to the market may have effect on how the returns to innovation are appropriated.

Measuring Innovation in the Autonomous Vehicle Technology Economic Research Working Paper No. 60

Author(s): Maryam Zehtabchi; Publication year: 2019

Automotive industry is going through a technological shock. Multiple intertwined technological advances (autonomous vehicle, connect vehicles and mobility-as-a-Service) are creating new rules for an industry that had not changed its way of doing business for almost a century. Key players from the tech and traditional automobile sectors – although with different incentives – are pooling resources to realize the goal of self-driving cars. AV innovation by auto and tech companies’ innovation is still largely home based, however, there is some shifting geography at the margin. AV and other related technologies are broadening the automotive innovation landscape, with several IT-focused hotspots – which traditionally were not at the center of automotive innovation – gaining prominence.

Batman forever? The economics of overlapping rights Economic Research Working Paper No. 61

Author(s): Alexander Cuntz, Franziska Kaiser; Publication year: 2020

When copyrighted comic characters are also protected under trademark laws, intellectual property (IP) rights can be overlapping. Arguably, registering a trademark can increase transaction costs for cross-media uses of characters, or it can help advertise across multiple sales channels. In an application to book, movie and video game publishing industries, we thus ask how creative reuse (innovation in uses) is affected in situations of overlapping rights, and whether ‘fuzzy boundaries’ of right frameworks are in fact enhancing or decreasing content sales.

Grand rights and opera reuse today Economic Research Working Paper No. 62

Author(s): Alexander Cuntz; Publication year: 2020

This article studies the economic role of grand rights in the incentives to stage and reuse works from the opera canon. It complements previous research on the incentives to create new opera (Giorcelli and Moser, 2020) in the way it looks at copyright taxing availability and follow-on creativity around works. Based on a unique dataset of global opera performances, we find that changes in copyright status increase the number of total performances individual works receive on stage once copyright expires. Moreover, we provide preliminary evidence on chilling, long-term effects of status around premiering operas and revivals at the beginning of the copyright term. Based on these findings, we discuss limitations of the study and novel options for copyright policy frameworks.

Exclusive content and platform competition in Latin America Economic Research Working Paper No. 63

Author(s): Alexander Cuntz, Kyle Bergquist; Publication year: 2020

Platforms often compete over non-price strategies such as the exclusive distribution of products. But these strategies are not always welfare-enhancing. Using rich data on audiovisuals distributed on platforms in Brazil, we find that non-exclusive distribution and availability of titles across platforms is more effective in deterring online piracy than in the single homing case. Moreover, in certain markets (TVOD), it induces higher average investment in the production of new titles upstream. We discuss options of copyright and antitrust policies in the light of these findings.

Expanding the World Gender-Name Dictionary: WGND 2.0 Economic Research Working Paper No. 64

Author(s): Gema Lax Martínez, Helena Saenz de Juano-i-Ribes, Deyun Yin, Bruno Le Feuvre, Intan Hamdan-Livramento, Kaori Saito, Julio Raffo; Publication year: 2021

This paper revisits the first World Gender Name Dictionary (WGND 1.0), allowing to disambiguate the gender in data naming physical persons (Lax Martínez et al., 2016). We discuss its advantages and limitations and propose an expansion based on updated data and additional sources. By including more than 26 million records linking given names and 195 different countries and territories, the resulting WGND 2.0 substantially increases the international coverage of its processor. As a result, it is particularly designed to be applied to intellectual property unit-record data naming inventors, designers, individual applicants and other creators disclosed in these data.

COVID-19 Impact on Artistic Income Economic Research Working Paper No. 65

Author(s): Alexander Cuntz, Matthias Sahli; Publication year: 2021

This paper assesses the impact of the pandemic crisis on self-employed income among artists resident in Germany. Using unique data from the latest available public insurance records, we show that musicians and performing artists are among the most vulnerable groups, and that writers, on average, are relatively less impacted. Moreover, the paper looks at the impact of the 2020 crisis on income differences by gender, career stages and regions, and it investigates the effect of specific non-pharmaceutical, public intervention implemented in German states.

Intermediary Liability and Trade in Follow-on Innovation Economic Research Working Paper No. 66

Liability rules affect the incentives of intermediaries to disseminate and curate creative works, in particular when works build on the work of predecessors and they are potentially infringing copyright. In an application to the visual arts, we show that appropriation artists borrow images from different sources and incorporate them into new, derivative works of art. By doing so, they risk infringing copyright but also put commercial trade and availability of the work at litigation risk as liability can extend to intermediaries in markets (auction houses) or in public exhibitions (museums). Using a differences-in-differences model and unique data on the level of the individual art work, we empirically investigate the impact of the prominent 2013 Cariou v. Prince U.S. court decision on trade and availability in Appropriation Art.

The impacts of counterfeiting on corporate investment Economic Research Working Paper No. 67

Author(s): Alexander Cuntz, Yi Qian; Publication year: 2021

This study uses a unique international database on customs seizures between the years 2011 to 2013 and matches global corporate statistics to study the impacts of counterfeiting on authentic corporations’ investment and revenues. Applying the matched sampling combined with panel analyses, we attempt to estimate the effects counterfeit incidences have on corporate research investment and on firm sales and revenues (“sales displacement”) in various industries. We find an overall negative effects on the R&D and net sales across various regression specifications, except for the broad sector of tools, materials, and vehicles (HS code 8).

Calculating private and social returns to COVID-19 vaccine innovation Economic Research Working Paper No. 68

Author(s): Carsten Fink; Publication year: 2022

What is the return to COVID-19 vaccine innovation? This paper seeks to quantify both private and social returns, using available data on commercialized vaccines and certain assumptions about the pandemic’s epidemiological path as well as the economic costs of containment measures. The calculations reveal high returns to innovation. In the baseline scenario, the social benefit of vaccine innovation amounts to 70.5 trillion United States (U.S.) dollars globally, exceeding its private benefit by a factor of 887. The calculations bear on the private and public incentives to invest in vaccine innovation.

Direction of innovation in developing countries and its driving forces Economic Research Working Paper No. 69

Author(s): Xiaolan Fu, Liu Shi; Publication year: 2022

Innovation is a major driving force of long-term economic growth and sustainable development. Direction of innovation matters because technical change is not neutral and hence bears significant social, economic and environmental development implications. This paper contributes to the literature through a systematic examination of the direction of innovation in developing and emerging economies and its driving forces. It shows that innovation in the global South exhibits a vibrant and diverse landscape when we do not confine ourselves with traditional research and innovation indicators. While emerging economies are accelerating their pace in inventive activities in fields such as ICTs, biotech and engineering, low-income countries (LICs) are also found to be active in learning-based, incremental “under-the-radar innovations” (URIs). These URIs that are introduced through international technology transfer and indigenous innovative efforts. Indigenous sources of URIs play a primary role in LICs, contributed by localised learning-by-doing, close interaction with customers and embeddedness in regional production networks and clusters. However, insufficient role of the state, a low science and technology intensity and a lack of university-industry linkage limit the potential of URIs. International technology transfer is another important driver of technical change in developing countries. However, its strengthen varies across countries due to differences in host country policy, absorptive capacity, and the type of foreign economic engagement that they have as well as the inappropriateness of transferred foreign technologies mostly from Global North. Given the status of direction of innovation and its driving forces in developing countries, this report argues that the unfolding 4th industrial revolution poses both challenges and opportunities to LICs. Policy implications are discussed.

Second World War and the direction of medical innovation Economic Research Working Paper No. 70

Author(s): Bhaven Sampat; Publication year: 2022

This paper provides an overview of the role of the United States of America (U.S.) Second World War research effort on the direction of innovation, with a particular focus on medical research. It provides an overview of the U.S. wartime research program, reviews quantitative evidence on the effects of the overall wartime research shock on postwar patenting, describes the wartime medical research effort, and summarizes case studies of five major wartime medical research programs (penicillin, antimalarials, vaccines, blood substitutes, and hormones) and their effects on postwar R&D. It concludes by drawing out implications for crisis innovation and the direction of innovation in general, discussing mechanisms through which crises may have long-run effects, and highlighting hypotheses warranting further investigation.

Innovations in the exploration of outer space Economic Research Working Paper No. 71

Author(s): Henry R. Hertzfeld, Benjamin Staats, George Leaua; Publication year: 2022

Human exploration of outer space has stimulated multiple innovations from both government and private sources. The decision to invest vast sums of money over a short period of time for the moon programs of the 1960s radically increased the level of innovation. Accomplishing this required new forms of energy for launch and space operations, reductions in the weight of components, and advanced computational capabilities, among many other technological improvements. The organization and management of bringing all of the components together was also essential. This report discusses economic aspects and overall benefits of those innovations as they fit into the prior and continuing push for advanced space capabilities.

Directing innovation towards a low-carbon future Economic Research Working Paper No. 72

Author(s): Joëlle Noailly; Publication year: 2022

Achieving the ambition of limiting global warming to 1.5°C to 2°C by the end of the century as enacted in the Paris Climate Agreement will require massive investments in environmental technologies and a forceful change of path away from high-carbon technologies. This report presents novel descriptive evidence on global trends in patenting in low-carbon technologies, with a particular focus on the energy and road transport sector. The analysis discusses the role of public policies in driving the rate and the direction of innovation for a low-carbon future.

COVID-19, Innovative Firms and Resilience Economic Research Working Paper No. 73

Author(s): Filippo Belloc, Massimo Del Gatto, Michele Battisti; Publication year: 2023

This paper explores the empirical association between patents and various indicators of firm resilience during the COVID-19 pandemic with worldwide firm-level data from manufacturing industries. The study shows that patent-intensive firms have a reduced probability of exit, in particular if they are larger and if engaging with complementary investments in R&D and other intangibles. Additional estimates show that firm productivity has been an important transmission channel. Taken together, the results presented in the paper offer evidence-based findings pointing to patents as an important potential factor contributing to firm resilience during the COVID-19 pandemic. Policy insights are discussed.

IP assets and film finance - a primer on standard practices in the U.S. Economic Research Working Paper No. 74

Author(s): Alessio Muscarnera, Alexander Cuntz, Matthias Sahli, Prince C. Oguguo; Publication year: 2023

This research summarizes the basic economics of film finance and standard practices in the U.S. movie industry. It shows how risk and uncertainty around new film finance are managed by the private sector and what market-based solutions have been developed to mitigate risk in the sector. Based on a series of expert interviews and exploratory data analysis, the research presents the most common types of financial deals on the ground and reoccurring funding practices for new film production and distribution in the past twenty years, including a discussion of most recent trends and digital changes in the sector. In particular, the research highlights the prominent role of intellectual property (IP) in financial transactions of the movie industry and it discusses policy options in the U.S. and beyond to better leverage IP assets for financing purposes.

Digitization and Availability of Artworks in Online Museum Collections Economic Research Working Paper No.75

Author(s): Alexander Cuntz, Matthias Sahli, Paul J. Heald; Publication year: 2023

We provide quantitative evidence from museum collections about how copyright status affects the availability of digital images of artworks. The paper applies a regression discontinuity and differences-in-differences design to estimate online availability of artworks from U.S. collections on digital platforms. We find a strong increase in the availability of digital surrogates when copyright is perceived to expire and original artworks are likely to transition to the public domain. Moreover, artworks and surrogates made available see a large number of downstream reuses based on google image search data, which indicates online availability is of commercial and public value independent of right status. Notably, we show that upstream surrogates of public domain artworks made available by museums are positively correlated with higher image resolution quality as compared to digitized artworks still protected under copyright laws. At the same time, it seems expressed industry norms can help encourage U.S. museums to also make low-resolution surrogates of copyrighted artworks available.

Ars longa, vita brevis: The death of the creator and the impact on exhibitions and auction markets Economic Research Working Paper No.76

Author(s): Alexander Cuntz, Matthias Sahli; Publication year: 2023

This paper studies the death effect on artists’ exhibitions and commercial success in the secondary art market. Based on a random sample of 1’000 popular artists born after the turn of the 20th century, we construct a novel panel data set of their worldwide exhibition history and auction transactions. By applying a regression discontinuity and event study design, we find an overall negative effect of artist death on the number of exhibitions. However, this post mortem effect disappears in longer term. Roughly ten years after death, exhibitions are back to pre-death levels. Arguably, transaction cost and higher auction prices after death also temporarily increase the average cost of exhibiting artworks, e.g. higher market valuation raises (unobserved) insurance cost for exhibitions. Hedonic auction price models confirm this intuition and suggest a significant price premium posthumously. We find substantial heterogeneity in the treatment depending on the age and reputation of the artist at death. Overall findings explain important mechanisms for the post mortem value of artistic work and have important policy implications for the creative sectors and the design of legacy stewardship rules, including a possible justification for rights granted post mortem such as copyright.

Artificial Intelligence and Intellectual Property: An Economic Perspective Economic Research Working Paper No.77

Author(s): Alexander Cuntz, Carsten Fink, Hansueli Stamm; Publication year: 2024

The emergence of Artificial Intelligence (AI) has profound implications for intellectual property (IP) frameworks. While much of the discussion so far has focused on the legal implications, we focus on the economic dimension. We dissect AI's role as both a facilitator and disruptor of innovation and creativity. Recalling economic principles and reviewing relevant literature, we explore the evolving landscape of AI innovation incentives and the challenges it poses to existing IP frameworks. From patentability dilemmas to copyright conundrums, we find that there is a delicate balance between fostering innovation and safeguarding societal interests amidst rapid technological progress. We also point to areas where future economic research could offer valuable insights to policymakers.

Access to science and innovation in the developing world Economic Research Working Paper No.78

Author(s): Alessio Muscarnera, Alexander Cuntz, Frank Mueller-Langer, Marc Scheufen, Prince C. Oguguo; Publication year: 2024

We examine the implications of lowering barriers to online access to scientific publications for science and innovation in developing countries. We investigate whether and how free or low-cost access to scientific publications through the UN-led Research For Life (R4L) initiative leads to more scientific publications and clinical trials of authors affiliated with research institutions in developing countries. We find that free or reduced-fee access to the health science literature through Hinari (WHO-led subprogramme) increases the scientific publication output and clinical trials output of institutions in developing countries. In contrast, once we control for selection bias, we do not find empirical support for a positive Hinari effect on knowledge spillovers and local institutions’ research input into global patenting, as measured by paper citations in patent documents. Main findings can be generalized to other R4L subprogrammes and are likely to also apply to the WIPO-led Access to Research for Development and Innovation (ARDI) programme.

Innovation Policies Under Economic Complexity Economic Research Working Paper No.79

Author(s): Christian Chacua, Matte Hartog, Muhammed A. Yildirim, Ricardo Hausmann, Shreyas Gadgin Matha; Publication year: 2024

Recent geopolitical challenges have revived the implementation of industrial and innovation policies. Ongoing discussions focus on supporting cutting-edge industries and strategic technologies but hardly pay attention to their impact on economic growth. In light of this, we discuss the design of innovation policies to address current development challenges while considering the complex nature of productive activities. Our approach conceives economic development and technological progress as a process of accumulation and diversification of knowledge. This process is limited by the tacit nature of knowledge and by countries’ binding constraints to growth. Consequently, effective innovation policies should be place-based and multidimensional, leveraging countries’ existing capabilities and addressing countries’ current problems. This contrasts policies that lead to economic efficiencies, such as copying other countries’ solutions to problems that countries do not currently have.

Global Trends in Innovation Patterns: A Complexity Approach Economic Research Working Paper No.80

Technological know-how in a country shapes its growth potential and competitiveness. Scientific publications, patents, and international trade data offer complementary insights into how ideas from science, technology, and production evolve, combine, and are transformed into capabilities. Analyzing their trajectories enables a more comprehensive and multifaceted understanding of the whole innovation process, from generating ideas to internationally commercializing products. We analyze the production patterns in these three domains, documenting the differences between advanced and emerging market economies. We find that future income, patenting, and publishing growth correlate with the economic complexity indices calculated from these domains. Capabilities embedded in the country also shape future diversification opportunities and make the innovation process path dependent. Lastly, we also show that diversification opportunities can be inferred across innovation domains.

Can we map innovation capabilities? Economic Research Working Paper No.81

Author(s): Christian Chacua, Eduardo Hernandez Rodriguez, Federico Moscatelli, Julio Raffo, Matte Hartog, Muhammed A. Yildirim, Shreyas Gadgin Matha; Publication year: 2024

Recent years have witnessed a resurgence of industrial policies globally. Through various industrial policy instruments, governments make critical scientific and technological choices that shape innovation paths and resource allocations. Our paper explores innovation capabilities as essential drivers of competitive outcomes, spanning science, technology, and production domains. Based on the economic complexity literature, we propose a methodological framework to measure the innovation capabilities empirically, leveraging data on scientific publications, patents, and trade. Our findings highlight the multidimensional nature of innovation capabilities and underscore the importance of understanding both the specialization and quality of these capabilities. Our results are in line with the complexity literature, as we also find: (i) positive correlations between the innovation complexity and economic growth; and, (ii) the predictive power of existing innovation capabilities for fostering new ones. Based on these findings, we propose novel indicators informing innovation policymaking on the innovation potential across science, technology, and production fields of an ecosystem. We suggest that innovation policymaking needs to be informed by deeper insights into innovation capabilities that are crucial for long-term growth and competitiveness improvement.

Innovation Complexity in AgTech: The case of Brazil, Kenya and the United States of America? Economic Research Working Paper No.82

Author(s): Alica Daly, Gregory D. Graff, Intan Hamdan-Livramento; Publication year: 2024

This paper illustrates successful policies and incentives that build on local innovation capabilities across three agricultural innovation hubs at different income levels and across different geographical regions. It makes the case for how countries highly complex innovation ecosystems, which refer to the diversity and sophistication of local innovators and the types of innovation they produce, tend to have more opportunities to shift their technological path to the frontier. The paper focuses on three agricultural hubs across different income levels and geography to illustrate how smart policies that focus on building local capabilities can help countries diversify and create their own agricultural technological paths. These hubs include: São Paulo in Brazil, Nairobi in Kenya and Colorado in the United States of America.

The Evolution of the Two-Wheeler Industry: A Comparative Study of Italy, Japan, and India Economic Research Working Paper No.83

Author(s): Paolo Aversa; Publication year: 2024

This study leverages secondary data to provide a comprehensive outlook on the origin and evolution of the two-wheeler industry in Italy, Japan, and India. The study reveals how different technological, design, and manufacturing capabilities, combined with specific economic and social features in the historical contexts, have contributed to determine different trajectories in the evolution of these national industries. Recent trends towards digital transformation, electric mobility, connected driving are discussed. Three main takeaways emerge from our analysis. Firstly, the local capabilities play a crucial role in shaping both the origin and progression of the technology and the industry. Secondly, the two-wheeler industry displays patterns and trajectories that mimic the automotive industry, which can thus be used to interpret and forecast past, present, and future of motorcycles. Thirdly, the two-wheeler industry has been uniquely influenced by other industries, which has enhanced the complexity and effectiveness of its products and introduced novel elements which are reshaping the international demand for two-wheelers.

Heterogeneous Development Paths to Growth and Innovation: The Evolution of the Video Game Industry across Four Hubs Economic Research Working Paper No.84

Author(s): Hakan Ozalp; Publication year: 2024

This study explores the evolution and success drivers of the global video game industry, focusing on key hubs within Finland, Poland, Japan, and the United States. Using a qualitative methodology, the research delves into how unique capabilities and historical development have contributed to the industry's growth across these nations. The findings reveal diverse pathways to building video game industry clusters, emphasizing the role of cross-industry skill transfer, intellectual property, and government support. In traditional hubs like Japan and the United States, the crossover of capabilities from entertainment and hardware industries has been crucial, whereas, in newer hubs like Finland and Poland, the growth is attributed to unique local developments such as hobby coder communities or leveraging the initial localization efforts to build globally appealing games. It further highlights the pivotal role of education in sustaining the growth of video game industry hubs.

Innovation and Intellectual Property Use in the Global Video Game Industry Economic Research Working Paper No.85

Author(s): Prince C. Oguguo; Publication year: 2024

This paper is an analysis of the evolution of the global video game industry, a sector characterized by rapid technological innovation and changing business models. It builds on the work of Özalp (2024) and delves into how innovation in hardware, software, digital transformation and business models have redefined the boundaries of game development and player experiences. The paper also explores the important job roles in the industry, the role of intellectual property and end with predictions for the future of the industry. It aims to provide an accessible understanding of the industry's evolution, its current state, and its potential future directions.

Economics Research Paper

This sample economics research paper features: 7800 words (approx. 26 pages), an outline, and a bibliography with 36 sources. Browse other research paper examples for more inspiration. If you need a thorough research paper written according to all the academic standards, you can always turn to our experienced writers for help. This is how your paper can get an A! Feel free to contact our writing service for professional assistance. We offer high-quality assignments for reasonable rates.

Evolutionary Economics Research Paper

Introduction, relationship between theories of biological and sociocultural evolution, the scope and methods of evolutionary economics, marxist models of evolution, original institutional economics, the new institutional economics, whither evolutionary economics.

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Evolutionary economics has gained increasing acceptance as a field of economics that focuses on change over time in the process of material provisioning (production, distribution, and consumption) and the social institutions that surround that process. It is closely related to, and often draws on research in, other disciplines such as economic sociology, economic anthropology, and international political economy. It has important implications for many other fields in economics, including, but not limited to, growth theory, economic development, economic history, political economy, history of thought, gender economics, industrial organization, the study of business cycles, and financial crises.

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Historically, evolutionary economics was the province of critics of the mainstream, neoclassical tradition. Both Marxist and original institutional economists (OIE) have long asserted the importance and relevance of understanding change over time and critiqued the standard competitive model for its abstract, ahistorical, and static focus. In recent years, however, the rise of the new institutional economics (NIE) as well as game theory has resulted in wider acceptance of evolutionary explanations by the mainstream (Hodgson, 2007b, pp. 1-15; North, 1990). Consequently, it is now possible to identify three major traditions in evolutionary economics: the Marxist (Sherman, 2006), the OIE (Hodgson, 2004), and the NIE (North, 1990). Each of these major traditions encompasses multiple strands within it. As a general rule, Marxists and OIEs seek to replace the standard competitive model of mainstream economics, while NIEs seek to complement the standard competitive model, although the growing acceptance of game theory may make this less of an important distinction. Despite their differences, it is possible to identify some common themes that are shared by each of these disparate traditions. For example, authors in each tradition have exhibited a concern with how the interaction of technology, social institutions, and ideologies leads to changes in economic and social organization over time.

The goal of this research paper is to introduce the reader to a few of the major concerns, themes, and important authors of each respective tradition. In doing so, it will first address some general issues in evolutionary economics, including its relationship to evolutionary biology as well as some conceptual, definitional, and taxonomic issues. It will then proceed to provide a brief overview of the evolution of each respective tradition. Unfortunately, the length of this research paper precludes discussion of many worthy contributions to each tradition as well as important topics that can and should be addressed by evolutionary economics. For example, space does not permit a discussion of how evolutionary economics could be applied to gender economics or how economists who write on gender often incorporate the contributions of evolutionary economists. Nor will this research paper attempt to assess the extent of empirical or conceptual progress in evolutionary economics within or between respective traditions. In addition, the reader should be aware that evolutionary economics itself is an evolving field and that the boundaries between the three traditions are often fluid.

General Issues in Evolutionary Economics

Taken at face value, the word evolution simply means change. But Darwin’s theory of gradual (step-by-step) evolution by variation of inherited characteristics and natural selection (differential survival based on the level of adaptation) removed both theological and teleological explanations from the process of biological evolution and placed humans firmly in the natural world. The modern neo-Darwinian synthetic theory of evolution combines Darwin’s focus on gradual (step-by-step) change based on variation of inherited characteristics and natural selection with modern population genetics. Both Darwin’s original theory and the modern synthetic theory of evolution explain change within a species, the rise of new species, and the more dramatic kinds of change such as the rise of mammals, primates, and eventually human beings as a result of the same step-by-step process (Mayr, 2001, 2004).

At the risk of oversimplifying slightly, it should be noted that the neo-Darwinian synthesis formulated by Thedosius Dobzhansky and Ernst Mayr in the 1950s has given rise to two sometimes opposing strands within the overarching frame of the synthesis (Mayr, 2004, pp. 133-138). One strand, exemplified by Richard Dawkins, who has written many widely read books on evolution, focuses on the role of genes in building organisms and on the tendency of natural selection to result in highly adapted organisms. This approach is sometimes referred to as the strong adaptationist program in evolutionary biology. It is closely related to fields such as sociobiology and evolutionary psychology, which explain many human behaviors in terms of their evolutionary origins.

Other evolutionary biologists have de-emphasized the role of natural selection and emphasize the importance of understanding biological evolution in terms of emergence, chance, path dependence, satisficing, and punctuated equilibrium. Richard Lewontin and the late Stephen J. Gould are two widely read authors who have advocated this position. Both Gould and Lewontin have been strongly critical of biologically based explanations for human behavior.

Although these two differing approaches to evolution are sometime viewed as rivals, they are in actuality complementary to each other. It is important to understand both aspects of biological evolution. In addition, biological evolution is a very complex process, and evolutionary biologists continue to push their field forward. Contemporary research in evolutionary biology focuses on the important interactions between genes, organisms, and their interaction with the environment in the process of development. Evolutionary biologists have also become more aware of the importance of lateral gene transfer and endo-symbiosis in bacteria evolution. However, there is still widespread consensus among evolutionary biologists that the synthetic theory of evolution is a true theory. Evolutionary biologists reject theories that incorporate teleological explanations or inheritance of acquired characteristics because these theories have been discredited empirically. Evolutionary biologists reject theories that are premised on or seek to find evidence of supernatural design as this adds nothing to the explanation and draws the focus of science away from understanding and explaining natural law.

Evolutionary economists often draw on and incorporate concepts developed by evolutionary biologists to explain how economic evolution occurs. For example, many evolutionary economists view economic evolution as a nondirected step-by-step process that is non-teleological (it lacks a specific goal or predetermined endpoint). Many, although not necessarily all, evolutionary economists agree that humans have at least some genetically based cognitive and social predispositions that are a result of genetic evolution. Some examples include the ability to learn a language, to learn social norms, to cooperate in groups, and to develop complex tool kits with which to transform nature into useable goods and services. In addition, the use of the Darwinian concepts of inheritance, variation, and selection as analogs to explain outcomes is pervasive in evolutionary economics. Evolutionary economists also distinguish between specific or microevolution (change that occurs within a sociocultural system) and general or macroevolution (change from one sociocultural system to another).

Some evolutionary economists view the market as natural and as an extended phenotype. Other evolutionary economists argue that evolutionary economics should be viewed as a generalization of the Darwinian concepts of variation, inheritance, and natural selection with each case specifying additional, relevant detail (Hodgson, 2007a; Hodgson & Knudsen, 2006). Others have argued that while Darwinian concepts often provide useful analogies for understanding sociocultural evolution, aspects of sociocultural evolution are distinctly non-Darwinian (Poirot, 2007). For example, in at least some instances, social and economic evolution results from the conscious decisions of groups of purposive agents who intentionally design or redesign human institutions. Also, in the process of socio-cultural evolution, we can pass on cultural traits that we acquire through the process of learning. Biological evolution results in a branching pattern and barriers between different species. But human cultures can always learn from each other. The more emphasis that is placed on purposive design of social institutions and cultural learning as well as the abruptness (instead of the step-by-step nature) of social change, the less Darwinian a model of sociocultural evolution becomes. However, it would be difficult to identify anyone today who argued for a strong teleological concept of sociocultural evolution or who sought to explain sociocultural evolution in terms of divine or supernatural intervention.

Two other important concepts borrowed from the natural sciences, emergence and complexity, also play a key role in evolutionary economics. Emergence means that an observed system results from the complex interaction of the components of the subsystems. This process of interaction gives rise to patterns that would not be predicted from and cannot be reduced to the behaviors of the individual components. However, understanding the system still requires an understanding of its components and the interaction of the components. So it is important to understand what individuals do. And it is also important to understand how individual choices and habits interact with social institutions in a dynamic way. It is often easier to think in mechanical terms. But if we are careless with mechanical analogies, then we can be easily misled.

This raises the question of what it is that evolves in sociocultural evolution. In evolutionary biology, selection takes place at multiple levels but logically requires changes in the gene pool of a population over time (Mayr, 2004, pp. 133-158). This has led some evolutionary economists to suggest that institutions and/or organizational routines provide us with an analog to the gene. Others argue that there is not a precise analog. To understand this debate, we first have to understand what an institution is.

It is popular to define institutions as “rules of the game.” This is a good start, but it confuses the function of institutions with a definition of institutions. A more extensive definition of institution defines an institution as any instituted process, or in other words a shared, learned, ordered, patterned, and ongoing way of thinking, feeling, and acting. Institutions may be tacit and informal or highly organized and structured. By this latter definition, modern firms, medieval manors, technology, nation-states, political ideologies, and even technology are all institutions. In other words, virtually everything that humans do is an instituted process. Institutions are component parts of a sociocultural system.

But to just call everything an “institution” can make it difficult to conduct analysis. So it is useful to draw a distinction between entities such as social ideologies (e.g., Calvinism and democracy), social institutions (e.g., class, caste, kinship, the family, the nation-state), organizations (e.g., the modern firm, the International Monetary Fund, the medieval manor), organizational routines of actors within specific organizations, and technology (the combined set of knowledge, practices, and tool kits used in production). So in that sense, everything in sociocultural systems is constantly evolving. There is no precise analog in sociocultural evolution to the gene pool of a population.

As suggested above, social institutions are part of more general wholes, which it is convenient to term sociocultural systems. A sociocultural system includes the direct patterns of interaction of a society with the ecosystem (its subsistence strategy, technology, and demographic patterns), its social institutions, and its patterns of abstract meaning and value. Many anthropologists classify sociocultural systems by their scale, complexity, and the amount of energy captured by their subsistence strategy. Standard classification includes bands, tribes, chiefdoms, agrarian states, and industrial states, each of which corresponds roughly to subsistence strategies of foraging, horticulture, pastoralism and fishing, settled agriculture, and modern industrial technology. This classification system provides a useful scheme with which to understand the rise of large agrarian empires in the neolithic era and, ultimately, the Industrial Revolution in northwestern Europe. It also provides a useful classificatory schema with which to understand the interaction of multiple kinds of contemporary societies in a globalizing world. However, care must be taken to emphasize the multilinear and dynamic nature of socio-cultural evolution rather than rigidly applying these concepts as a universal and unilinear schema (e.g., see Harris, 1997; Wolf, 1982).

The evolutionary biologist Ernst Mayr (2004) argued that biologists who study genetic evolution ask “why” questions while biologists who study things such as biochemistry ask “how” questions. Similarly, many mainstream economists ask “how” questions while evolutionary economists ask “why” questions. While the study of evolutionary economics does not preclude the use of formal mathematical models or quantification, most of its practitioners employ qualitative and interpretive methods. Also, as suggested above, some evolutionary biologists focus on changes that occur at the level of species, while others focus on more dramatic kinds of change. Similarly, evolutionary economists are interested in the study of sociocultural evolution on a grand scale, such as the rise of agrarian empires or modern capitalism, as well more specific, micro-level evolution such as changes in the organizational routines of individual firms.

Consequently, the kinds of issues that evolutionary economists are interested in overlap with the focus of other social sciences and even, in some instances, with the fields of ecology and evolutionary biology. Evolutionary economics reflects a tendency to counter the fragmentation of political economy into disparate social sciences that occurred in the late nineteenth and early twentieth centuries. Evolutionary economists, like their counterparts in economic sociology, economic anthropology, and political economy, focus more directly on those institutions with the strongest, most immediate, direct relevance to the process of material provisioning. So there may still be a need for some division of labor in the social sciences. What is of direct relevance will vary according to what is being analyzed in any particular study. An economic historian studying the rise of capitalism may, following Weber, find an understanding of Calvinist theology to be essential. Someone studying financial innovation in twenty-first-century industrialized societies would most likely find the religious affiliation of modern banking executives to be of little interest or relevance.

Research Traditions in Evolutionary Economics

Evolutionary economics is composed of three rival but sometimes overlapping major traditions: the Marxist, the OIE, and the NIE. While there is some degree of ideological overlap between the schools, each of the respective schools tends to share a common overarching ideology. Marxists seek to replace capitalism, OIEs seek to reform capitalism, and NIEs generally view capitalism as beneficent. This is not, notably, to argue that the ideology necessarily determines the empirical and theoretical analysis. Also, as previously noted, Marxists and OIEs seek to replace the standard competitive model while NIEs seek to complement the standard model. However, the reader should be aware that the boundary between the three traditions is often fuzzy, and there is sometimes overlap between the three traditions. Similarly, each of these three schools is composed of multiple strands and has undergone significant change over time.

The remainder of this research paper will focus on outlining in very broad terms a few of the significant themes and concerns of each respective tradition, how these traditions have changed over time, and the contributions of a few representative authors of each of the three traditions. The reader may note that despite the differences between the traditions, there is a strong interest in all three in understanding how technology, social institutions, and cognitive models interact in the process of sociocultural evolution. The division made between the three traditions may be of greater interest and relevance in the United States, where there is a strong correlation between specific organizations and schools of thought. For example, the Association for Evolutionary Economics (AFEE) has been the primary promoter of OIE in the United States. In contrast, the European Association for Evolutionary Political Economy (EAEPE) has a much wider umbrella. So there may be hope someday for a grand synthesis of the three respective traditions.

There are, of course, many different Marxist and quasiMarxist models of sociocultural evolution. For the purposes of this research paper, it is convenient to make the differentia specifica of a Marxist model of sociocultural evolution a focus on class struggle: the conflict between social groups defined in terms of differential access to the productive resources of a given society (Dugger & Sherman, 2000). This way of understanding sociocultural evolution is often referred to as historical materialism. While Darwinian reasoning may at times be employed in Marxist theories of sociocultural evolution, Marxists have generally emphasized the non-Darwinian aspects of sociocultural evolution as well as sharp discontinuities between human and infrahuman species. At the same time, it is hard to think of any academic Marxists writing today who would advocate Lysenkoism or Lamarckian theories of inheritance as valid explanatory concepts for understanding genetic evolution.

To understand historical materialism, we must begin with Marx’s concept of the mode of production (for extended discussions, see Wolf, 1982, chap. 3, and also Fusfeld, 1977). A mode of production includes the techno-environmental relationships (e.g., agriculture based on a plough or factories using steam engines) and the social relationships of production (e.g., warlords and peasants or factory owners and workers) or, in Marxist jargon, the forces of production and the social relations of production, respectively. These relationships between groups of people in Marx’s view are characterized by unequal relations of power, domination, subordination, and exploitation. This gives rise to social conflict over the terms of access to and the distribution of the productive resources of society. Social conflict requires the creation of a coercive entity to enforce the interests of the dominant social class (i.e., a state). In addition, human beings develop complex ideologies with which to justify their positions. Thus, the entire civilization (or what above is termed a sociocultural system) rests on a given mode of production, with the mode of production distinguished by the primary means of mobilizing labor (e.g., slavery, serfdom, wage labor).

In his analysis of Western history, Marx distinguished between the primitive commune, the slave mode of production of the ancient Roman Empire, the Germanic mode of production, the feudal mode of production of medieval Europe, and the modern capitalist mode of production. In analyzing Western history, Marx argued that each successive mode of production had produced technological advance, thus elevating the material level of human existence.

Capitalism, in Marx’s view, is qualitatively different from extended commodity production. Capitalism requires that land, labor, and capital are fully treated as commodities. This means that labor is “free” in the sense of not being legally bound to perform labor for the dominant class and “free” in the sense that it has no claim to the resources needed to produce goods and services. Therefore, capital is used as a means to finance innovation in production, and labor is compelled by economic circumstances to sell its labor power. Because capitalism promotes endless accumulation of capital, it is thus far the most successful in a material sense. However, the dynamic of capitalist accumulation gives rise to periodic crises, and it is therefore unstable. In addition, it is often destructive of human relationships. So a relationship of apparent freedom is in actuality a relationship of power, subordination, and domination that will give rise to social conflict. The only way to end this conflict, in Marx’s view, is to redesign social institutions so as to pro-mote both development of the forces of production and social cooperation (i.e., replace capitalism with socialism). There is disagreement among scholars who study Marx as to whether Marx thought that the triumph of socialism over capitalism was inevitable.

Insofar as one seeks to explain the historical origins of capitalism and the Industrial Revolution, two historical epochs are of particular relevance. Marxist historians and Marxist economists (and many others) with a particular interest in economic history thus often refer to two transitions (one from antiquity to feudalism and the other from feudalism to capitalism) as giving rise to modern capitalism. Howard Sherman (1995, 2006), a well-known Marxist economist, has summarized and synthesized much of this existing literature.

Sherman traces Western economic history from tribal organization through the rise of modern capitalism. Sherman is a materialist who analyzes societies by starting with the material base of human existence and examines the interaction between technology, economic institutions, social institutions, and ideologies. Technology and technological innovation as well as social conflict between classes are key variables in Sherman’s analysis. But overall, Sherman’s schema is holistic and interactive, rather than mechanical or reductionist.

In analyzing the breakdown of feudalism, Sherman focuses on the tripartite class conflict between peasants, nobles, and monarchs and the ability of each of the respective classes to force an outcome on the other classes. As a consequence of this conflict, a new pattern of relationships based on private property and production for profit in a market, as well as increasingly organized around new sources of mechanical power, gave rise to a unique and extremely productive system referred to as capitalism. This system of production encourages constant cost cutting, innovation, and capital accumulation, thus leading to the potential for the progressive material elevation of human society.

However, capitalist society is still riven by conflict between property-less workers and property-owning capitalists. Because the capitalist has a monopoly over the productive resources of society, the capitalist is still able to compel the worker to produce a surplus for the capitalist. This creates social conflict between the capitalist and worker and also forces the capitalist into an ultimately self-defeating boom-and-bust cycle of rising profits and increasing concentrations of capital, followed by falling rates of profit, leading to cycles of recession and crisis. The institutional structure of capitalism also magnifies other social conflicts and problems such as environmental degradation and destruction, as well as relations between racial and ethnic groups and genders. The solution to this social conflict, in Sherman’s view, is to replace the institutions of capitalism with economic democracy (i.e., democratic socialism).

Sherman, who has long been a critic of Stalinist-style socialism, also extends his analysis to change in Russia and the Soviet Union. The October Revolution of 1917 occurred because neither the czar nor the Mensheviks were able to satisfy the material aspirations of the vast majority of Russians. But industrialization in the Soviet Union became a nondemocratic, elite-directed process due primarily to the particular circumstances surrounding the Bolshevik Revolution, the ensuing civil war, and the problems of the New Economic Policy. In time, factions among the elites developed as the Soviet economy proved unable to satisfy the material aspirations of the majority of the Soviet population. This created new pressure for change as elites were able to capture this process. Due also to pressure from the West, change in the former Soviet Union took the direction of restoring capitalism rather than developing greater economic democracy.

It should be noted that the standard Marxist model of historical materialism focuses on the ability of capitalism to elevate the material capacity of human societies. This focus has been challenged by the rise of world systems and dependency theory. Theorists who follow this line of thinking focus on the uneven nature of development and the tendency of core economies to place boundaries on the development of formerly colonized areas of the world. Some theorists in this tradition have been justly accused of having a rather muddled conception of the term capitalism, insofar as they claim inspiration from Marx. The late Eric Wolf (1982), a well-known economic anthropologist, resolved many of these conceptual issues in his book Europe and the People Without History. So rather than assume that capitalism leads uniformly to material progress, Wolf extended the historical materialist model to analyze the process of uneven development in the world system as a whole. In their textbook on economic development, James Cypher and James Dietz (2004) provide an excellent history and exposition of classical Marxism, dependency theory, and extended analysis and discussion of the new institutional economics, original institutional economics, and modernization theory.

Thorstein Veblen (1898) was the founder of OIE, and his influence on OIE continues to be prevalent (Hodgson, 2004). Veblen was strongly influenced by Darwin’s theory of biological evolution and held evolutionary science as the standard for the social sciences, including economics, to emulate. He was also deeply influenced by the evolutionary epistemology of the American pragmatists Charles Saunders Peirce and John Dewey. In addition, he incorporated the contrasting positions of nineteenth-century evolutionist anthropology, as exhibited by the work of Tylor and Morgan, and the historical particularism of Franz Boas. Although he was strongly critical of Marx and of Marxism, there are both parallels as well as differences in the writings of Marx and Veblen.

Like Marx, Veblen focused on the importance of understanding the interaction of changes in technology, social institutions, and social ideologies as well as social conflict. Veblen also had a stage theory of history, which he borrowed from the prevailing anthropological schemas of his day. However, where Marx focuses on concepts such as class and mode of production, Veblen focuses on instituted processes and the conflicts created by vested interests seeking to reinforce invidious distinctions. Veblen’s model of sociocultural evolution is a conflict model in that it focuses broadly on social conflict that arises in the struggle for access to power, prestige, and property. But it is not a class-based model in the sense that Marxists use class.

In “Why Is Economics Not an Evolutionary Science?” (1898) and in “The Preconceptions of Economic Science” (1899) , Veblen developed a critique of the mainstream economics of his day. In developing this critique, Veblen was critical of the abstract and a priori nature of much of mainstream economic analysis. In articulating this point, he contrasted the “a priori method” with the “matter of fact method.” This particular aspect of Veblen’s criticism has often led some to view both Veblen and later OIEs as “atheoretical.” But this misses the point for at least two reasons.

Veblen did not eschew theoretical analysis per se. He was however, critical of theory that divorced itself from understanding actual, real-world processes of material provisioning. But most important, in Veblen’s view, economics was not up to the standards of evolutionary science because economics continued to implicitly embrace the concepts of natural price and natural law by focusing on economics as the study of economizing behavior and the adjustment of markets to equilibrium. In contrast, Veblen argued that the process of material provisioning entailed a constant process of adaptation to the physical and social environment through the adjustment of institutions or deeply ingrained social habits based on instinct. Veblen’s understanding of the term institution was broad enough to encompass any instituted process. Yet he drew a sharp distinction between institutions and technology. He was sharply critical of the former and strongly in favor of the latter.

When Veblen wrote about deep-seated and persistent social habits developing on the basis of genetically based instincts, he did in fact appear to mean something similar to contemporary theories of gene-culture evolution. Social habits are not consciously thought-through, purposive behaviors—they develop out of the complex “reflex arc” of enculturation based on genetically based propensities to act in the presence of environmental stimuli. Instincts are acquired through genetic evolution and social habits through enculturation. Both are inherited, vary in nature, and may therefore be selected for or against in the process of sociocultural evolution (Hodgson, 2004, Part III). However, Veblen also borrowed from Dewey a view of socialization in which individuals are active participants in socialization, a concept that was later more clearly articulated by Meade. In addition, Veblen also emphasized the ability of humans to conceptualize and engage in purposive behavior.

Veblen drew a sharp dichotomy between the instinct of workmanship and the instinct of predation. He associated the instinct of workmanship with a focus on adaptive, problem-solving, tinkering, and innovative behavior. In contrast, he associated predation with a focus on brute force, ceremonial displays of power, emulative behavior, conspicuous consumption, financial speculation, and the power of vested interests. Veblen argued that the instinct of workmanship arose in the primitive stage of human history (roughly corresponding to what contemporary anthropologists would term bands and tribes) and that the instinct of predation emerged during the stage of barbarism (roughly corresponding to the rise of chiefdoms). These instincts gave rise to deep-seated social habits. Both instincts continued to be present during the rise of civilization (agrarian states) and persisted in modern civilization (industrial states). But because modern civilization is based on the rise and extensive application of machine technology, further progress would require the triumph of the instinct of workmanship over the instinct of predation.

But in Veblen’s view, there was no reason to expect this would necessarily occur. Vested interests were often capable of instituting their power to reinforce the instinct of predation. Hence, institutions often served to encapsulate and reinforce the instinct of predation. The behaviors of predation were primarily exhibited by the new “leisure class” or, in other words, the robber barons of the late nineteenth century. In contrast, workmen and engineers often exhibited the instinct of workmanship. Consequently, Veblen tended to view institutions in general as change inhibiting and the instinct of workmanship as change promoting.

In later works, Veblen extended this kind of analysis to study other topics such as changes in firm organization and the business cycle. Veblen argued that as modern firms became larger and more monopolistic, a permanent leisure class arose, thus displacing technological thinking among this new class. In addition, increasing amounts of time and energy were channeled into financial speculation, leading to repeated financial crises. Emulative behavior in the form of conspicuous consumption and ceremonial displays of patriotism and militarism served to reinforce the instinct of predation. In his analysis of the rise of militarism in Prussia, Veblen noted the socially devastating impact of the triumph of the instinct of predation. Thus, Veblen tended to identify institutions with imbecilic behaviors that serve to block the triumph of technological innovations.

Veblen’s focus on the conflict between the instinct of workmanship and predatory and pecuniary instincts is often referred to as the instrumental-ceremonial dichotomy. Ayres (1938) in particular reinforced the tendency of the OIE to focus on the past binding and ceremonial aspects of institutions and on the scientific and progressive nature of instrumental reasoning. This dichotomy was, at one point in time, a core proposition of the OIE.

Most contemporary OIEs, however, recognize and accept that at least some institutions can promote and facilitate progressive change and that technology itself is an institution. This rethinking of the ceremonial-instrumental dichotomy is also reflected in the incorporation of Karl Polanyi’s (1944) dichotomy between habitation and improvement. Polanyi noted that the need for social pro-tection may actually serve a noninvidious purpose. Some improvements destroy livelihoods and reinforce invidious distinctions while others promote the life process. So the distinction might better be thought of in terms of “invidious versus noninvidious.”

One OIE who had a more positive understanding of the role of institutions is J. R. Commons (Commons, 1970; Wunder & Kemp, 2008). Commons in particular focused on the need for order in society and thus addressed the evolution of legal systems and the state. Commons’s theory is primarily microevolutionary insofar as he focuses on the evolution of legal arrangements and shifting power alignments in modern industrial states. Commons is not as critical of existing arrangements as Veblen. Institutions, including the state, in Commons’s view, are clearly both necessary and potentially beneficial. For example, with the rise of big business, labor conflict, and the problems inherent in the business cycle, there is a need for a strong state to manage this conflict. At the same time, Commons developed a theory of the business cycle that has strong elements in common with some of Keynes’s analysis.

The Veblenian strand as expressed by Commons is, by the standards of American politics, moderately left of center in that it expresses support for much of the regulatory framework and expanded role of government in managing the business cycle that came out of the New Deal and the publication of Keynes’s (1936) The General Theory of Employment, Interest and Money. Not surprisingly, a number of OIE economists have begun to attempt to synthesize OIE and Keynes, relying to a large degree on the work of Hyman Minsky (1982). This project, often referred to as PKI (post-Keynesian institutionalism), is microevolution-ary in nature in that it focuses on the problems of financial instability created by financial innovation and deregulation. The goal of PKI is wisely managed capitalism (Whalen, 2008). PKI clearly has a focus on the possibility of designing effective institutions, which logically implies that at least some institutions can embody instrumental reasoning.

In contrast to the direction taken by some OIEs, Hodgson (2004) has argued that Veblen’s focus on technological thinking and the Commons-Ayres trend in OIE was a wrong turn for OIE. He has sought to revivify OIE by reinterpreting Veblenian economics as generalized Darwinism. Generalized Darwinism, according to Hodgson, generalizes the basic principles of Darwin’s biological theory of evolution (inheritance, variation, and selection) to sociocultural evolution. In Hodgson’s view, the mechanisms of inheritance, variation, and selection are not just analogies or metaphors to explain outcomes in social evolution—they are ontological principles that describe any entity that evolves. As noted above, because institutions and organizational routines are inherited through cultural learning and vary, they are subject to selection. Social evolution is therefore a special case of the more general case of evolution.

However, Hodgson (2004) also acknowledges that human agents are purposive and that culture is an emergent phenomenon. So Hodgson is not seeking to biologize social inequality or to reduce the social sciences to genetic principles such as inclusive fitness. Indeed, as Hodgson states, “more is needed” than just the principles of inheritance, variation, and natural selection. This would appear to be an understanding of how social institutions, in concert with instincts and human agency, generate outcomes in a complex, emergent process of social evolution. To this end, Hodgson has incorporated some elements of structure agency theory into his analysis.

Hodgson’s program could be taken as an injunction to OIEs to build models of change that incorporate both Darwinian principles as well as more complex concepts of structure and agency. Hodgson has used this model to explain how changes in firm organization can be selected for or against by changes in market structure. So there are strong parallels between the work of Hodgson and that of Nelson and Winter (1982), who could notably be placed in either the OIE or NIE camp. As noted in the preceding section, Hodgson’s view of evolutionary economics as “generalized Darwinism” is controversial, even among his fellow OIEs.

One competing strand of Veblenian economics is the radical strand as advocated by Bill Dugger (Dugger & Sherman, 2000). Dugger focuses on the role of technology, instrumental reasoning, and institutions as providing the capacity for improving the material condition of humans. The full application of instrumental reasoning, however, in Dugger’s view is blocked by the key institutions of capitalism. These institutions are reinforced by ceremonial myths. Dugger also puts more emphasis on the social and ideological implications of the respective traditions and has been sharply critical of the NIE. He has also notably been instrumental in promoting dialogue between Marxists and OIEs and has often copublished works on sociocultural evolution with Howard Sherman. Dugger also tends to emphasize the non-Darwinian nature of sociocultural evolution.

It can be fairly argued that Adam Smith was the first evolutionary economist, even though his contributions predate any significant consideration of biological evolution by naturalists. Adam Smith provides an account of how an increasingly complex society arises out of the natural propensity of humans to truck, barter, and exchange (Fusfeld, 1977; Smith, 1776/1937). Ironically, some of Smith’s concerns with specialization and division of labor, as well as the writings of another political economist, Thomas Malthus, influenced Darwin. Many Social Darwinists in the late nineteenth century drew on Darwinian reasoning to explain how competitive markets work and to justify social inequality. Some twentieth-century theorists such as Frederick Hayek and Larry Arnhart have tended to view the market as a natural outgrowth of human genetic endowments.

Taken as a whole, however, evolutionary explanations fell out of favor among economists in the twentieth century. In the late nineteenth century, the social sciences became increasingly fragmented, and the new field of economics increasingly lost its evolutionary focus. With the triumph of the standard competitive model in the mid-twentieth century, economics became narrowly focused on providing formal mathematical proofs of narrowly defined “how” questions. However, there are some signs that the standard competitive model is in the process of being displaced by game theory. There is also widespread recognition that it is necessary to supplement the standard competitive model with an evolutionary account. These developments have led to an increased acceptance of evolutionary explanations among mainstream economists and renewed attention to the importance of institutions in framing economic outcomes.

Some strands of the NIE, particularly the version espoused by Coase (1974) and Williamson (1985), view institutions primarily as providing “solutions” to the problems of asymmetric information and transactions costs. This strand of NIE does not significantly challenge the standard competitive model or its underlying behavioral assumptions. To the contrary, it is a complement to the standard competitive model. It is also to a large degree a micro-oriented theory of sociocultural evolution.

A more dynamic view of economic evolution is that of Joseph Schumpeter (1908, 1950). Schumpeter focused on the individual entrepreneur and his role in promoting technological innovation. This technological innovation disturbs the equilibrium and leads to gales of creative destruction. However, with the rise of the modern, bureaucratically organized firm, the role of the entrepreneur was lessened, leading to a static and moribund organization. Schumpeter thought that this would eventually lead to the destruction of capitalism, an outcome that, in contrast to Marx, Schumpeter viewed in a negative way. Schumpeter, however, drew a strong distinction between statics, exemplified by the Walrasian model of his day, and dynamics, exemplified by theories of economic evolution. Thus, “dynamics” was intended to complement “statics” (Andersen, 2008). Many contemporary mainstream models of economic growth, often referred to as new growth theory, explicitly incorporate Schumpeterian analysis.

Some of the richness of Schumpeter’s focus on technological innovation as gales of creative destruction has been recaptured by the economic historian Joel Mokyr (1990) in his masterful work on technological progress. Mokyr adapts Gould’s concept of “punctuated equilibrium” to the history of technology. He also draws a distinction between invention (the rise of new techniques and processes) and innovation (the spread of these new techniques). The Industrial Revolution, in Mokyr’s view, is ongoing but is nevertheless a clear instance of a dramatic change in technological and social organization. Similarly, the work of Nelson and Winter (1982), previously cited, which acknowledges the contributions of Veblen, can also be considered neo-Schumpeterian. There are, it should be noted, significant parallels between Marx, Schumpeter, and Veblen, as well as differences.

The most prominent and most successful NIE, of course, is Douglas North. North’s career has spanned several decades, during which his contributions to multiple fields in economics have been voluminous. Notably, North’s own views themselves have undergone significant evolution. North’s (1981) earlier work on economic evolution was an application of the work of Coase (1974) and Williamson (1985) to the problem of economic evolution and did not significantly challenge the standard competitive model. North viewed economic evolution as taking place due to changing resource constraints in response to the growth in population as rational agents calculated the marginal costs and marginal benefits of shifting from foraging to farming.

North’s later work (1990, 1991, 1994), however, has challenged many aspects of the standard competitive model. North has focused specifically on the role institutions play in cognitive framing of decision making. Notably, North has explicitly abandoned the theory of strong rational choice in favor of models of human behavior that focus on the limited ability of humans to obtain, process, and act on information. In most textbook models of market behavior, price is the primary means of providing information. But in North’s view of markets, information encompasses much more than price. In addition, norms, values, and ideology can blunt the ability of humans to obtain and interpret some information. North is not arguing that humans are “irrational” as his approach still logically implies some degree of calculation and conscious decision making based on self-interest. But he has abandoned the strong view of rationality, which implies humans are lightning rods of hedonic calculation. In that sense, his view of human behavior is much closer to that of the Austrians in focusing on the purposiveness of human behavior.

For the most part, North tends to see institutions as constraints on human action, though he acknowledges that institutions can provide incentives both in terms of the things we actually do, as well as the things that we do not do. Thus, institutions that reward innovative behavior, risk seeking, and trade will lead to efficient outcomes. Institutions that reward rent seeking and prohibit innovation and trade will lead to inefficient outcomes. Once an institutional structure is set, there is a strong degree of inertia that perpetuates the existing institutional structure. In other words, evolutionary paths, in North’s view, tend to be path dependent. Clearly, the kinds of institutions in North’s view that promote efficient outcomes are those that clearly define the rules of the game in favor of the operation of markets. This does not necessarily imply laissez-faire as the state may still be necessary to perform multiple functions. It does serve to distinguish between states, such as Great Britain in the seventeenth and eighteenth centuries or South Korea in the past several decades, that were able to define an institutional framework that promoted innovation and growth as opposed to states such as Spain in the sixteenth and seventeenth centuries or in the Congo (Zaire) today that destroy any incentive for innovation and economic growth.

This raises two very interesting questions. How does a particular type of path become established, and how does it change? North’s explanation is one that is rooted in a metaphor of variation and selection. Greater variation will allow for a higher probability that a particular path will be successful. Greater centralization will reduce variation and increase the chances that the state will adopt or promote institutions that blunt technological and social innovation. North explains the greater success of Europe versus the rest of the world as a result of the relative decentralization of Europe in the early modern period. Arbitrary authoritarian states that destroyed incentives for growth such as Spain existed. But Spain was unable to impose its will on Europe or on the emerging world market. Consequently, this enabled states such as England, where the power of the Crown became limited as Parliament enacted laws to protect commercial interests and innovation, to industrialize rapidly and emerge as world leaders. These contrasting paths were transferred to the New World. The United States inherited and successfully modified the institutional framework of Britain and therefore developed. Latin America inherited and failed to successfully modify the institutional frame-work of absolutist Spain and developed much more slowly.

Evolutionary economics clearly has a future. Economists in general are becoming more attuned to the importance of understanding how humans organize the economy through institutions and how institutions change over time. This entails extensive borrowing of concepts from evolutionary biology and a reconsideration of the underlying behavioral assumptions of mainstream economics. Understanding how institutions permit or inhibit changes in technology, as well as how changes in technology in turn require changes in institutions, is a concern of all three schools of evolutionary economics. As NIE economists push the boundaries of the mainstream, at least some have increasingly asked heterodox questions, and a few have been willing to acknowledge heterodox contributions. Some Marxist and OIE scholars have also begun to note that at least some versions of NIE, if not necessarily entirely new, are at least genuinely institutional and evolutionary. Any grand synthesis seems distant, but there is at least a basis for further argumentation and even dialogue.

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Are Markups Driving the Ups and Downs of Inflation?

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FRBSF Economic Letter 2024-12 | May 13, 2024

How much impact have price markups for goods and services had on the recent surge and the subsequent decline of inflation? Since 2021, markups have risen substantially in a few industries such as motor vehicles and petroleum. However, aggregate markups—which are more relevant for overall inflation—have generally remained flat, in line with previous economic recoveries over the past three decades. These patterns suggest that markup fluctuations have not been a main driver of the ups and downs of inflation during the post-pandemic recovery.

In the recovery from the pandemic, U.S. inflation surged to a peak of over 7% in June 2022 and has since declined to 2.7% in March 2024, as measured by the 12-month change in the personal consumption expenditures (PCE) price index. What factors have been driving the ups and downs of inflation? Production costs are traditionally considered a main contributor, particularly costs stemming from fluctuations in demand for and supply of goods and services. As demand for their products rises, companies need to hire more workers and buy more intermediate goods, pushing up production costs. Supply chain disruptions can also push up the cost of production. Firms may pass on all or part of the cost increases to consumers by raising prices. Thus, an important theoretical linkage runs from cost increases to inflation. Likewise, decreases in costs should lead to disinflation.

Labor costs are an important factor of production costs and are often useful for gauging inflationary pressures. However, during the post-pandemic surge in inflation, nominal wages rose more slowly than prices, such that real labor costs were falling until early 2023. By contrast, disruptions to global supply chains pushed up intermediate goods costs, contributing to the surge in inflation (see, for example, Liu and Nguyen 2023). However, supply chains have more direct impacts on goods inflation than on services inflation, which also rose substantially.

In this Economic Letter , we consider another factor that might drive inflation fluctuations: changes in firms’ pricing power and markups. An increase in pricing power would be reflected in price-cost markups, leading to higher inflation; likewise, a decline in pricing power and markups could alleviate inflation pressures. We use industry-level measures of markups to trace their evolving impact on inflation during the current expansion. We find that markups rose substantially in some sectors, such as the motor vehicles industry. However, the aggregate markup across all sectors of the economy, which is more relevant for inflation, has stayed essentially flat during the post-pandemic recovery. This is broadly in line with patterns during previous business cycle recoveries. Overall, our analysis suggests that fluctuations in markups were not a main driver of the post-pandemic surge in inflation, nor of the recent disinflation that started in mid-2022.

Potential drivers of inflation: Production costs and markups

To support households and businesses during the pandemic, the Federal Reserve lowered the federal funds rate target to essentially zero, and the federal government provided large fiscal transfers and increased unemployment benefits. These policies boosted demand for goods and services, especially as the economy recovered from the depth of the pandemic.

The increase in overall demand, combined with supply shortages, boosted the costs of production, contributing to the surge in inflation during the post-pandemic recovery. Although labor costs account for a large part of firms’ total production costs, real labor costs were falling between early 2021 and mid-2022 such that the increases in prices outpaced those in nominal wages. This makes it unlikely that labor costs were driving the surge in inflation.

Instead, we focus on another potential alternative driver of inflation that resulted from firms’ ability to adjust prices, known as pricing power. As demand for goods surged early in the post-pandemic recovery, companies may have had a greater ability to raise their prices above their production costs, a gap known as markups. Following a sharp drop in spending at the height of the pandemic, people may have become eager to resume normal spending patterns and hence more tolerant to price increases than in the past. In fact, growth of nonfinancial corporate profits accelerated in the early part of the recovery (see Figure 1), suggesting that companies had increased pricing power. Some studies have pointed to the strong growth in nonfinancial corporate profits in 2021 as evidence that increased markups have contributed to inflation (see, for example, Weber and Wasmer 2023). However, the figure also shows that growth in corporate profits is typically volatile. Corporate profits tend to rise in the early stages of economic recoveries. Data for the current recovery show that the increase in corporate profits is not particularly pronounced compared with previous recoveries.

Figure 1 Profit growth for nonfinancial businesses

More importantly, corporate profits are an imperfect measure of a firm’s pricing power because several other factors can drive changes in profitability. For instance, much of the recent rise in corporate profits can be attributed to lower business taxes and higher subsidies from pandemic-related government support, as well as lower net interest payments due to monetary policy accommodation (Pallazzo 2023).

Instead of relying on profits as a measure of pricing power, we construct direct measures of markups based on standard economic models. Theory suggests that companies set prices as a markup over variable production costs, and that markup can be inferred from the share of a firm’s revenue spent on a given variable production factor, such as labor or intermediate goods. Over the period of data we use, we assume that the specific proportion of a company’s production costs going toward inputs does not change. If the share of a firm’s revenue used for inputs falls, it would imply a rise in the firm’s price-cost margin or markup. In our main analysis, we use industry-level data from the Bureau of Economic Analysis (BEA) to compute markups based on the share of revenue spent on intermediate inputs. Our results are similar if we instead use the share of revenue going toward labor costs.

We compare the evolution of markups to that of prices, as measured by the PCE price index, since the recovery from the pandemic. In constructing this price index, the BEA takes into account changes in product characteristics (for instance, size) that could otherwise bias the inflation measure by comparing the prices of inherently different products over time. Similarly, based upon standard economic theory, our markup measure implicitly captures changes in those characteristics (see, for example, Aghion et al. 2023).

The post-pandemic evolution of markups

We examine the evolution of markups in each industry since the third quarter of 2020, the start of the post-pandemic recovery. Figure 2 shows that some sectors, such as the motor vehicles and petroleum industries, experienced large cumulative increases in markups during the recovery. Markups also rose substantially in general merchandise, such as department stores, and for other services, such as repair and maintenance, personal care, and laundry services. Since the start of the expansion, markups in those industries rose by over 10%—comparable in size to the cumulative increases over the same period in the core PCE price index, which excludes volatile food and energy components. However, the surge in inflation through June 2022 was broad based, with prices also rising substantially outside of these sectors. Thus, understanding the importance of markups for driving inflation requires a macroeconomic perspective that examines the evolution of aggregate markups across all sectors of the economy.

Figure 2 Cumulative changes in markups for salient industries

The role of aggregate markups in the economy

To assess how much markup changes contribute to movements in inflation more broadly, we use our industry-level measurements to calculate an aggregate markup at the macroeconomic level. We aggregate the cumulative changes in industry markups, applying two different weighting methods, as displayed in Figure 3. In the first method (green line), we match our industry categories to the spending categories in the core PCE price index for ease of comparison; we then use the PCE weights for each category to compute the aggregate markup. Alternatively, we use each industry’s cost weights to compute the aggregate markup (blue line). Regardless of the weighting method, Figure 3 shows that aggregate markups have stayed essentially flat since the start of the recovery, while the core PCE price index (gray line) rose by more than 10%. Thus, changes in markups are not likely to be the main driver of inflation during the recovery, which aligns with results from Glover, Mustre-del-Río, and von Ende-Becker (2023) and Hornstein (2023) using different methodologies or data. Markups also have not played much of a role in the slowing of inflation since the summer of 2022.

Figure 3 Cumulative changes in aggregate markups and prices

Moreover, the path of aggregate markups over the past three years is not unusual compared with previous recoveries. Figure 4 shows the cumulative changes in aggregate markups since the start of the current recovery (dark blue line), alongside aggregate markups following the 1991 (green line), 2001 (yellow line), and 2008 (light blue line) recessions. Aggregate markups have stayed roughly constant throughout all four recoveries.

Figure 4 Cumulative changes of aggregate markups in recoveries

Firms’ pricing power may change over time, resulting in markup fluctuations. In this Letter , we examine whether increases in markups played an important role during the inflation surge between early 2021 and mid-2022 and if declines in markups have contributed to disinflation since then. Using industry-level data, we show that markups did rise substantially in a few important sectors, such as motor vehicles and petroleum products. However, aggregate markups—the more relevant measure for overall inflation—have stayed essentially flat since the start of the recovery. As such, rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery.

Aghion, Philippe, Antonin Bergeaud, Timo Boppart, Peter J. Klenow, and Huiyu Li. 2023. “A Theory of Falling Growth and Rising Rents.”  Review of Economic Studies  90(6), pp.2,675-2,702.

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Liu, Zheng, and Thuy Lan Nguyen. 2023. “ Global Supply Chain Pressures and U.S. Inflation .” FRBSF Economic Letter 2023-14 (June 20).

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Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System. This publication is edited by Anita Todd and Karen Barnes. Permission to reprint portions of articles or whole articles must be obtained in writing. Please send editorial comments and requests for reprint permission to [email protected]

Can the greening of the tax system improve enterprises’ ESG performance? Evidence from China

• Published: 15 May 2024
• Volume 57 , article number  127 , ( 2024 )

Cite this article

• Caiyun Lin 1 ,
• Shibao Lu 2 ,
• Xuyang Su 1 &
• Chuanhao Wen 1  

Can the greening of the tax system truly drive high-quality development of enterprises? ESG, as an investment concept and evaluation criterion focusing on corporate sustainable development, is an essential tool for enterprises to practice high-quality economic development. Based on this, using China’s environmental protection tax reform in 2018 as a natural experiment, this paper examines the impact and transmission paths of environmental protection tax on enterprises’ ESG performance from the unique dual perspectives of external attention and internal decision-making, adopting a diference-in-differences (DID) approach. The study finds that, firstly, environmental protection tax significantly improves enterprises’ ESG levels through the internal level of green innovation and external public environmental concerns. Moreover, the level of internal governance and external analyst attention play a positive moderating role in this process. Secondly, the improvement effect of environmental protection tax on enterprises’ ESG performance is more significant for manufacturing enterprises, non-state-owned enterprises, financially resource-rich enterprises, and enterprises located in regions with higher economic growth, lower government-market linkage, and better legal environment. This research responds to the fundamental question of whether the greening of the tax system can truly promote high-quality development of enterprises, and provides valuable insight into how to further enhance the promoting role of environmental protection tax on enterprises’ ESG performance.

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The environmental protection tax reform implemented since 2018 generally refers to the original pollution discharge fee system. However, local governments are allowed to independently increase the collection standards for taxable pollutants within 10 times the minimum collection standard set by the central government for major pollutants. After the official implementation of the environmental protection tax, some provinces and cities have increased the collection standards for taxable pollutants, which means an increase in the environmental protection tax rate. Meanwhile, other provinces and cities have kept the environmental protection tax rate unchanged from the previous pollutant discharge fee standards, following the principle of “tax burden remains the same”.

Environmental regulations in China can be categorized into three types: command and control regulations, market-based environmental regulations, and public participation regulations.

In order to address the challenges of cross-regional environmental governance and strengthen the national ecological environment supervision capacity, China has established a regional environmental inspection system. This system began with the establishment of the “Regional Environmental supervision Center”. With the adoption of the “Environmental Protection Inspection Plan (Trial)” in 2015, the “Regional Environmental supervision Center” was adjusted to the “Regional Environmental Inspection Bureau”, thus clearly establishing an environmental inspection mechanism.

The definition of heavily-polluting industries is based on the criteria provided by the China Securities Regulatory Commission's revised “Guidelines for Industry Classification of listed companies” in 2012 and the Ministry of Environmental Protection's published “List of Classification and Management of Environmental Protection Inspection Industries for listed companies”.

The marketization index constructed by Fan Gang and Wang Xiaolu et al. consists of five components: government-market relationship, non-state economic development, degree of product market development, degree of factor market development, and degree of development of market intermediary organizations and legal system environment.

Shareholder aspect includes the proportion of shares held by the largest shareholder, the ownership balance index, property rights nature, and institutional investor shareholding. The board of directors aspect includes board independence, board size, and whether the chairman and CEO positions are combined. The incentive mechanism aspect includes the proportion of management's equity holdings, and the compensation of the top three management members.

Analysts' attention reflects the number of analysts (or teams) that have tracked and analyzed the company within a year. One team is considered as one unit, and its individual members are not counted separately.

Research reports' attention refers to the number of research reports that have tracked and analyzed the company within a year.

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Acknowledgements

This research was supported by the Major Project of the National Social Science Fund of China (20&ZD095), the Yunnan Provincial Workstation of Philosophy and Social Sciences Experts (2021GZZH01) , Humanities and Social Science Project of the Ministry of Education—Tracking and Evaluation of Green Development Performance of Ecological Products on the Improvement Path in the Middle and Lower reaches of the Yangtze River (23A10673002), Sichuan Province philosophy and social science key project (SCJJ23ND46) and the Innovation Team for Green Development in the Upper Yangtze River at Yunnan University. The authors sincerely thank the reviewers and editors.

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Lin, C., Lu, S., Su, X. et al. Can the greening of the tax system improve enterprises’ ESG performance? Evidence from China. Econ Change Restruct 57 , 127 (2024). https://doi.org/10.1007/s10644-024-09687-w

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Financial markets play two roles with implications for the exchange rate: they accommodate risk sharing and act as a source of shocks. In prevailing theories, these roles are seen as mutually exclusive and individually face challenges in explaining exchange rate dynamics. However, we demonstrate that this is not necessarily the case. We develop an analytical framework that characterizes the link between exchange rates and finance across all conceivable market structures. Our findings indicate that full market segmentation is not necessary for financial shocks to explain exchange rates. Moreover, financial markets can accommodate a significant extent of international risk sharing without leading to the classic exchange rate puzzles. We identify plausible market structures where both roles coexist, addressing challenges faced when examined separately.

The authors have no relevant or material financial interests that relate to the research described in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

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