Tuesday, September 09, 2008

Lots of prizes!

Yep! It's one of the really bright ideas in the Cutler Innovation Review, named Venturous Australia.

It's in the excellent Chapter 7:

Recommendation 7.1: The Australian Government should experiment with the use of prizes to stimulate innovation. funding should be modest - say $5 million over two years with an external evaluation after three years.

What's so bright about the idea?

Patents (meant to stimulate innovation) are turning out to stifle it.

They are being granted for ideas that once wouldn't have been patentable, where they stop innovation until the patent expires.

"In the words of Sir Isaac Newton, we stand on the shoulders of giants. Because new knowledge always builds on old knowledge, the property rights we have erected to encourage innovation can actually obstruct it."

The report wants intellectual property treated as an economic, rather than a legal question. "It should make the same transition as competition policy did in the 1980s and 1990s to being managed as such."

Just as we began examining import protection on its economic merits we should begin examining IP protection on its economic merits.

But prizes as an alternative?...

Well think about what people will do to get a knighthood, or an Order of Australia.

In Queensland, some of them did a lot.

According to a study of the International Who's Who Australia is one of the top 5 countries in the world for awards per head.

But using them instead of patents?

The US Senate is/was considering The Medical Innovation Prize Fund Act of 2007.

The idea:

"The level of funding for medical innovation prizes would start at $80 billion per year, and increase with the growth in GDP..

The patent system would still be used, but the patent owners would no longer be given monopoly rights to control the manufacturing and sale of products. Instead, patents would be used to establish who "owns" the right to the cash rewards given for new inventions. Drugs developed without patents would also be eligible for the prizes."

HT: Marginal Revolution

A new book called Against Intellectual Monopoly argues that the patent system was rotten from the start.

The authors say James Watt, inventor of the steam engine was a "scoundrel" who with his politically-connected partner Matthew Boulton used the patent system to crush their innovative opposition and delay the industrial revolution.

"During the period of Watt's patents, the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; however between 1810 and 1835 it is estimated to have increased by a factor of five."

MR. Some dispute this.

A prize for his really bright idea might have been better.

Joshua Gans proposed them in his submission to the review.

John Quiggin and Dan Hunter touch on some of the ideas in a paper entitled Money Ruins Everything.

Here's something else from Chapter 7 of Venturous Australia:

Box 3: Some examples and principles of targeted transparency

In their book Full disclosure: the perils and promise of tranparency American scholars Archon Fung, Mary Graham and David Weil outline a range of regimes that mandate disclosure to consumers which were designed to improve information flows. The two most successful examples of what they call ‘targeted transparency’ demonstrate the link between good information flows, demanding customers and innovation.

Los Angeles required restaurants to display prominently on their front window the rating they had received for hygiene from the government regulatory regime. Importantly the rating was to be displayed as a simple ‘A’, ‘B’ or ‘C’ classification which was easily understood by consumers.

With this information so prominently available to consumers, consumers were more easily able to demonstrate their preferences. Virtue in such matters became its own reward; and perhaps more pointedly, vice became its own punishment. The public’s unsurprising distaste for bad hygiene kicked off a vigorous race to the top with restaurants striving to move up the ladder, particularly from a ‘C’ grading with a range of beneficial impacts, not least lower admissions to hospitals for food poisoning.