My Thesis: The Institutional Structure of Innovation Commons

This is a little window into my research. This post is intentionally not long, academically dry, or excessively referenced.  

Innovation is undeniably important for economic growth. After all, how can we progress without new ideas? Changing innovation attitudes have been a significant driver of recent global economic growth[1].  Both ironically and unfortunately, innovation policy has progressed relatively little in recent times. We wish to address the innovation problem with a new perspective, to further enhance both our own understanding, and public policy.

There is an innovation problem. It is a social dilemma. The issue is that  innovation leads to the production of new knowledge and new ideas. These are non-excludable and non-rival. Okay, I may have just slipped into economic-speak. Let me explain it differently. Take the quadratic formula. If I am using it, I can’t stop you using it (it is non-excludable). Second, everyone may be calculating at the same time without impact on any one person’s utility of math (it is non-rival). Therefore, say I invented the quadratic formula … it would be pretty hard for me to make money (appropriate it).

Taking these characteristics, we tend to see the production of innovation at sub-optimal levels. That is, society would benefit if people were more innovative. Following the early work of Pigou (1912), this is known as a market failure problem. Unsurprisingly, government then comes along and decides it needs to fix the problem. Even less surprising, government and economists are not new to misunderstanding fundamental problems.

We use two main policies; (1) intellectual property; and (2) research and development subsidies. It is important to understand how they work. Intellectual property (IP) gives the innovator monopoly over the idea, allowing the exclusion of others from use. This solves the issue of appropriation. Research and development (R&D) subsidies and tax credits simply pay for the fixed cost of innovation from the public purse.

These are by no means perfect solutions:

IP laws tend to restrict further innovation and lock-down ideas. There is significant evidence that new ideas are simply remixes of old ones. In a way, current innovators ‘stand on the shoulder of giants’[2]. Monopolising knowledge significantly restricts this, or at the very least makes it expensive. Further, the current raft of ‘defense patenting’ has no productive value at all. It is simply a case of unproductive rent-seeking, because the rules of the game allow (and almost encourage) it.

R&D subsidies face all of the problems inherent in government failure. It ignores any kind of market feedback mechanism, is subject to special interests and often has a risk-averse nature. By excluding the value of the market, government ignores all of the significant market knowledge ‘of the time and place’[3] that is the basic foundation of our society.  Don’t even get me started on government efficiency…

The proposal – While innovation suffers a market failure, so too does government. The innovation problem is more broadly one of institutional structure. Current policy prescriptions focus only on private and public. Considering their shortcomings, we need to look through a different lense. For example, innovation commons are becoming increasingly important hubs for solving this social dilemma. Yet, they are largely ignored by policy.

You need not look far to discover examples of ‘garage’ tech start-ups that have vastly improved our lives. Has anyone heard of Open Source Software (eg. most likely your current browser)? Personal Computers? Google? Facebook? 3D Printing?

These innovations flourished with little government involvement (at the beginning, at least). We want to know how, when and why. Innovation commons may be an effective institution to bypass some of the disadvantages of the private/public dichotomy currently in policy. Traditional economic theory cannot adequately explain why people invest significant time into innovation and release it into the public domain. It happens, but it doesn’t make sense.

The first step in this work is in developing a comprehensive institutional map of Australian innovation structure. From this, we can see the proportions of innovation in each structure. We can then delve deeper into innovation commons as institutions. If we can more extensively understand the ‘rules of the game’ in innovation commons, we can implement this into pubic innovation policy.  

If anyone is interested in the topic, or wishes to discuss, I can be contacted at darcy.allen@rmit.edu.au


[1] McCloskey, 2010

[2] Scotchmer, 1991

[3] Hayek, 1945

2 thoughts on “My Thesis: The Institutional Structure of Innovation Commons

    1. The innovation problem, like economics, is one of incentives. It is forming institutional structures to incentivise innovation, in the most efficient way possible. Attempted use of policy to move innovation and knowledge into either the private or public spheres are not the only option.

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