[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

uncertain about whether it will be allowed to capture the benefits of any new process,
machine, or article of manufacture that it produces—then fewer resources will be
invested in research and the production of these innovations.
Society has another consideration, however. Producing a new idea may be very
costly, but it needs to be produced only once. Your laptop embodies thousands of new
ideas, but these ideas do not have to be reproduced each time a new laptop is manufactured.
The screen, memory chips, and case did have to be produced for each
laptop; they are examples of rivalrous goods—the memory chips in your laptop
cannot be in your roommate’s laptop. But the same is not true of the machine’s design.
Goods whose consumption or use by one person does not exclude consumption by
another are nonrivalrous goods—a concept we introduced in Chapter 11. If both you
and your roommate are taking economics, both of you can use an idea like the law of
supply and demand. If your roommate does her homework first, the idea is still available
to you when you get around to studying. The marginal cost of using such a nonrivalrous
good is zero: it costs nothing to use the idea one more time. So from society’s
perspective, the idea should be freely available to anyone who wants to use it.
Recall that in Chapter 11, a pure public good was defined as always available to
others and as having a marginal cost of zero when provided to an additional person
(it is nonrivalrous). Most types of knowledge come close to satisfying this definition,
though it is rarely entirely impossible to exclude consumption by others. Thus, we
can think of knowledge or an idea as a public good. And like other public goods, it is
accompanied by a tension between providing incentives for its production, on the
one hand, and ensuring it is widely used, on the other.
Societies address this tension through patents. The U.S. Constitution empowers
Congress to grant “for limited Times to Authors and Inventors the exclusive
Right to their respective Writings and Discoveries.” Economists refer to this creative
output as intellectual property. The limited time for most inventions is currently
twenty years. During this period, other producers are precluded from making
or using the invention in a product of their own, without the permission of the patent
holder. A patent holder may allow others to use its patent (typically for a fee, called
a royalty) or to sell its product.
THE TRADE-OFF BETWEEN SHORT-TERM
EFFICIENCY AND INNOVATION
The patent system grants the inventor a temporary monopoly, enabling her to appropriate
some part of the returns on her inventive activity. In Chapter 12, we saw that
compared to a firm in a competitive market, a monopoly produces a lower level of
output that sells at a higher price. In Chapter 10, we saw that competitive markets,
in which price is equal to marginal cost, ensure economic efficiency. In our early
analysis, we assumed the state of technology as given. We refer to this kind of
economic efficiency as static efficiency.
But the overall efficiency of the economy requires harmonizing these short-term
concerns with the long-term objectives of stimulating research and innovation. Firms
will innovate only if they can reap a return on their investment, and that in
LINKS BETWEEN TECHNOLOGICAL CHANGE AND IMPERFECT COMPETITION ∂ 457