The Economics of Innovation

It is widely believed that innovation is the key driver behind economic growth in developed economies, and even more so in Western Europe, Japan and the US. All three economic areas are short of natural resources and their most important good is human capital, e.g. well educated labor force that creates innovations which can be sold on world markets.

Innovation sometimes is the offspring of coincidence but most often it is the outcome of targeted research. Successful research in turn depends both on human capital and on physical capital, such as research laboratories.

There are two common types of innovations: Product innovations (which affect quality) and process innovations (which affect production costs). Both types of innovations are enhancing product demand.

Economic policy sets the incentive structure for research and innovation. Intellectual property rights (e.g. patents and trademarks) ensure that innovators receive a fair share of their efforts and governments try to set standards such that new technologies can reach a critical mass as soon as possible. This course discusses the economics behind innovation and offers answers for questions like:

• How can innovation be protected?
• To what extent does competition matter for innovation?
• What type of incentives does public policy create for innovation?
• How can firms use intellectual property rights as business strategy devices?

This course hence endows students with the elementary skills necessary to understand the driving forces behind innovation at the firm level which enables them to judge and rate a firm's innovation policy.

This course is aimed at graduate students of management and economics who plan to work with high technology firms or institutions that finance innovative firms such as banking, private equity or venture capital.

The text for the class is: Scotchmer, S. 2004. Innovation and Incentives, Cambridge, MA: MIT Press.

The book is supplemented by the following papers:

• Fischer, T., J. Henkel. 2012. "Patent Trolls on Markets for Technology - An Empirical Analysis of NPEs' Patent Acquisitions." Research Policy 41(9), 1519-1533.
• Heath, C., J. Henkel and M. Reitzig. 2007. "On Sharks, Trolls, and Their Patent Prey - Unrealistic Damage Awards and Firms' Strategies of Being Infringed." Research Policy 36(1), 134-154.
• Heller, M.A., R.S. Eisenberg. 1998. "Can Patents Deter Innovation? The Anticommons in Biomedical Research." Science 280(5364), 698-701.
• Reitzig, M. 2004. "Strategic Management of Intellectual Property." MIT Sloan Management Review 45(3), 35-40.

* Tutorials start on February 27, 2013.

This class gives 6 ECTS points. Students from Business Administration and Management and Economics can use the credits for the following modules:

• MA: Wahlpflichtbereich BWL 5
• MA: Pflichtmodule ME

Final written exam is scheduled for June 18, 2013 from 10:15 to 12:00 in room KOL-F-118. It is a closed book exam.