Monday, November 15, 2010

My Thoughts Exactly

More from Jones and Romer
As just one example, recall that the increasing returns to scale that is implied by nonrivalry leads to the failure of Adam Smith’s famous invisible hand result. The institutions of complete property rights and perfect competition that work so well in a world consisting solely of rival goods no longer deliver the optimal allocation of resources in a world containing ideas. Efficiency in use dictates price equal to marginal cost. But with increasing returns, there is insufficient output to pay each input its marginal product; in general, price must exceed marginal cost somewhere to provide the incentive for profit maximizing private firms to create new ideas.1 This tension is at the heart of the problem: a single price cannot simultaneously allocate goods to their most efficient uses and provide the appropriate incentives for innovation.

An important unresolved policy question is therefore the optimal design of institutions that support the production and distribution of nonrival ideas. In practice, most observers seem to agree that some complicated mix of secrecy, intellectual property rights that convey partial excludability, public subsidies through the institutions of science, and private voluntary provision is more efficient than any corner solution like that prescribed for rival goods. We are, however, very far from results we could derive from first principles to guide decisions about which types of goods are best served by which institutional arrangement.
I've been thinking about this for some time; the tension between sharing for public good, and incentivizing sharing of profitable ideas through a patent structure (and determining whether this is even enforcable in the near future) is a tough nut to crack.

Also education: today education provides many tasks at once, educating and providing credentials at the same time -- but articles such as this makes one think we are failing at that front too. Insant communication, and the availability of information allowed the rise of "knowledge mercenaries" who provide homework solutions, master's, even PhD thesis' in not-so-average universities [1].

There is a lot of work to do.

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[1] This article is written by one such mercenary; basically for non-mathematical subjects, this guy takes your assignment (and money), sits down, Googles like crazy, and writes you a paper on a subject of your choosing.

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