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ECON 318 Economics of Science and Technology Syllabus (subject to some changes to readings) Spring 2018
Course Information
Description Technological change is key driver of economic growth. It is also a disruptive and powerful influence on industries, regions, and nations. Understanding the patterns of how technological change takes place and affects the economy is tremendously useful to policy analysts, those involved in government and diplomacy, and to businesspeople. It is difficult, however, to maintain perspective on technological change because it is always, by definition, new and never-before seen. Nonetheless, the newness is usually in the details, not the underlying patterns and context, so there is much to be learned from understanding the economics of technology. This course takes a systematic approach to the question of technology based on several tools and stories. What is the economic-historical context of particular technologies. We will see that new technologies tend to come in identifiable revolutions, have predictable effects, and generate particular kinds of political, legal, and economic opposition. Why do people invest in new technologies given the risks and uncertainties involved? Actually, they often don’t, and many industries, countries, and time periods see relatively stagnant growth as a result. The key motivators are three-fold: the legal system of property rights, the economic system of business firms and other institutions, and the involvement of government and other organizations operating outside the for- profit sector. How does a new technology influence the economy and the political environment. Here we will focus on the indirect spillovers and learning that take place when a new technology is adopted and begins to diffuse throughout the economy. We will see that a key measure of this effect is productivity, but that there are usually organizational, institutional, and cultural effects of technology that are at least as important and may not be measured by productivity alone. The goal of the course is to develop these tools as a system to analyze technologies. By mastering this framework, an observer can then rigorously evaluate a technology in context and avoid some of the confusion stemming from its inherent newness. Tools 1. Classification: product and process innovations, innovation and imitation, general purpose technology, infrastructure, transformative, demand-pull and cost-push, Technology Flow Framework (ideas/facilities/artifacts), winner-take-all (superstar) markets 2. Spillovers and Appropriability: Arrow’s model, patents and intellectual property, clusters 3. Technological Revolutions: the First, Second, and maybe Third/Fourth Industrial Revolutions, discontent and Marxism, dual economies, and recent revolutionary growth in China. 3. Competition and Rents 4. Complements on the Demand Side: direct network effects, indirect network effects, and long tails. 5. Theory of the Firm: traditional finance, venture capital, bubbles, intangibles, blockchain-based decentralization. 6. Complements on the Supply Side: factors of production, Jevons’ Paradox, growth theory, productivity, robots, and the cost disease Prerequisite Students must have a course in intermediate microeconomics, normally ECON 301. Meeting Time and Place Thursday 2:50-4:10, PAC 421. Office Hours Formal office hours are M T W Th 1:05 – 2:20 in PAC 331, but my door is generally open when I'm in. A call or email before you walk over is a good idea. Grading Scale I use the Hogie Scale, which gives a 0, 1, 2 (the "hurdle" level), 3, 4 (minor problems), or 5 for each question or category of evaluation. To find your letter grade equivalent, divide by the number of questions/categories to get your average score on the 0-5 scale. Then convert according to: 4.5=A, 4.0=A-, 3.7=B+, 3.3=B, 3.0=B-, 2.7=C+. 2.3=C, 2.0=C-. Requirements and Structure 1. Two short presentations randomly assigned and done with a random partner on an example that fits in with the tools and stories of the week. We will always start with the example of the day. (10% of total grade) 2. A weekly response done with a randomly assigned partner demonstrating understanding of the tools and stories of the week and relating them to the examples of the week. (35% of total grade; on half the responses you are the lead and those responses count 65% toward your response grade, on the other half you are the advisor and those count 35% toward your grade.) 3. Technology analysis project. Working alone or in teams of 2, students will analyze a particular technology in a particular context and evaluate it using our tools and stories. (55% of final grade divided as follows: part 1 introduction and analysis using Classification, Spillovers and Appropriability, and Technological Revolutions, 25% of grade, part 2 remaining 6 3 remaining tools/stories 30% of grade, plus optional revisions to part 1 that can be worth up to 15% (out of the original 25%).) 4. Preparation and participation. Students are expected to read required readings, to work through and/or take careful notes on the especially (esp.) parts of the assignments, and to participate in class discussions. (an up to plus-or-minus 1 point adjustment to the average of the above, re-averaged into the total with a 10% weight) Class Participation Please ask a lot of questions. Your questions are likely to generate positive externalities since more likely than not, your peers have the same questions that you do. Your class participation adjustment is equal to the weighted average of your other grades (on the 5 point scale) plus or minus up to 1 point. The positive point would come from generating positive externalities through helpful discussion. Negative points would come from distracting other students through using a phone or computer for things other than taking notes. Technology Analysis Project (i) Identify and describe a specific technology in a specific context (time period, country or region, industry, company, product, policy or business question). (ii) Use the tools and stories developed in the course to evaluate the technology. In part 1, give an Introduction and cover Classification, Spillovers and Appropriability, and Technological Revolutions.
Course Outline GR = Christine Greenhalgh and Mark Rogers, Innovation, Intellectual Property, and Economic Growth, Princeton University Press, 2010. ● Filled circle readings and assignments are required. ○ Open circle readings are strictly optional background. They are included to provide a starting point should you be interested in pursuing that topic in greater depth.
I. Classification and Context
1/25 Th	1. Introduction Example: AOL/Time Warner Merger Names and Presence Condition ○ McGrath, R. G. (2015). 15 years later, lessons from the failed aol-time warner merger. Fortune, January, 10. ○ Matsakis, L. (2017). “Regulate facebook like AIM.” Motherboard. ○ Faulhaber, G. (2002). Network effects and merger analysis: instant messaging and the aol–time warner case. Telecommunications Policy, 26(5):311–333. ○ Bertrand Russel (1932), “On Being Modern-Minded,” The Nation.
1/30 T	2. The Revolution Paradigm Tools: Technological Revolutions. Story: The British Industrial Revolution. pictures Example: South Korea (Kush, Zhi) ● Presentation ● Nef, J. U. (1957), "Coal Mining and Utilization," Chapter 3 in Volume III of Singer et al, eds., A History of Technology, OUP, esp. 77-78, 80-81, 82-84. ● Hogendorn and Frischmann, “Infrastructure and General Purpose Technologies: A Technology Flow Framework,” Wesleyan Economics Working Paper 2017-001, esp. 1-9. ○ Voigtländer, N., & Voth, H. J. (2013). Gifts of Mars: Warfare and Europe's early rise to riches. Journal of Economic Perspectives, 27(4), 165-186. ○ Rosenberg, Nathan, "The Historiography of Technical Progress," Chapter 1 in Inside the Black Box: Technology and Economics, Cambridge University Press, 1982: 3-33. ○ LCB Chapter 7.
2/1 Th	3. The First Industrial Revolution Tools: Technological Revolutions Example: Textiles (Anu, Brian) ● Handout ● Koehn, Nancy, “Josiah Wedgwood and the First Industrial Revolution,” Chapter 2 in Thomas McCraw, ed., Creating Modern Capitalism, Harvard University Press, 1995, esp. 19-20, 22-27, 35-42, 45-48 ○ Meisenzahl, R. R., & Mokyr, J. (2011). The rate and direction of invention in the British industrial revolution: Incentives and institutions. In The rate and direction of inventive activity revisited (pp. 443-479). University of Chicago Press. ○ Ashton, T. S., The Industrial Revolution: 1760-1830, Oxford University Press, 1948.
2/6 T	4. Inequality, Discontent, Marx, and Cardwell’s Law Tools: Competition and Rents, Technological Revolutions Example: The Swing Riots (Win, Elias) ● Handout ● William Blake, "And Did Those Feet in Ancient Time," preface to Milton, 1808. (source of the line "dark Satanic mills") ● Boyer, George (1998) "The Historical Background of the Communist Manifesto," Journal of Economic Perspectives, 12(4), 1998: esp. 153-157, 160-165. ○ Mokyr, Joel, "The Political Economy of Knowledge: Innovation and Resistance in Economic History," Chapter 6 in The Gifts of Athena, Princeton University Press, 2002: 78-118. ○ Baumol, Chapter 16 in The Free Market Innovation Machine, Free Press, 2002. ○ Rosenberg, Nathan, "Marx as a Student of Technology," Chapter 2 in Inside the Black Box: Technology and Economics, Cambridge University Press, 1982: 34-54. ○ Ashton, T. S., "Capital and Labour," Chapter 4 in The Industrial Revolution: 1760-1830, Oxford University Press, 1948: 94-126.
2/8 Th	5. The Second Industrial Revolution Tools: Theory of the Firm, Technological Revolutions Example: New York Subway (Amy, Taylor) ● Handout ● Thomas McCraw (1995) "American Capitalism," Chapter 9 in McCraw, Thomas, ed., Creating Modern Capitalism, Harvard University Press, esp. 315-336 ○ Chandler, Alfred (1990) Scale and Scope: the Dynamics of Industrial Capitalism, Harvard University Press, Chapters 2 and 3. ○ Rosenberg, Nathan, "Technological Interdependence in the American Economy," Chapter 3 in Inside the Black Box: Technology and Economics, Cambridge University Press, 1982. ○ Nye, David, "Flexible Factory," Chapter 5 in Electrifying America, MIT Press, 1990: 185-237. ○ Perelman, Michael, "Retrospectives: Fixed Capital, Railroad Economics and the Critique of the Market," Journal of Economic Perspectives, 8(3), 1994: 189-195. ○ Miller (2005) Railway.com.
2/13 T	6. Schumpeterian Competition Tools: Competition and Rents, Theory of the Firm, Industrial Revolutions Example: Kodak, Bell Labs, Netflix, Apple, Uber (Jonathan, Zhi) ● Handout ● Leonard Nakamura (2000), “Economics and the New Economy: The Invisible Hand Meets Creative Destruction,” Business Review Federal Reserve Bank of Philadelphia, July/ August, esp. 18-23. ● Chris Martin (2018) “First Solar Is Using Robots to Better Tap the Sun,” Bloomberg Buinessweek, Jan. 24. ○ Baumol, Chapter 3, “Oligopolistic Rivalry and Routinization to Reduce Uncertainty” in The Free Market Innovation Machine, Free Press, 2002. ○ Kohn, Meir, and John Scott, "Scale Economies in Research and Development: The Schumpeterian Hypothesis," Journal of Industrial Economics, Vol. 30, No. 3, March, 1982, pp. 239-249.
2/15 Th	7. The ICT Revolution Tools: Technological Revolutions Example: Types of Venture Capital (Brian, Xhonia) ● Handout ● Gordon Moore and Kevin Davis (2004), "Learning the Silicon Valley Way," chapter 2 in Bresnahan and Gambardella, eds., Building High-Tech Clusters: Silicon Valley and Beyond: 7-39. ● Gordon, R. J. (2017) Chapter 17 in The rise and fall of American growth: The US standard of living since the civil war. Princeton University Press, esp. 574-589 ○ Gordon, R. J. (2017) Chapter 13 in The rise and fall of American growth: The US standard of living since the civil war. Princeton University Press. ○ Mowery, David and Timothy Simcoe, "Is the Internet a US invention?—an economic and technological history of computer networking," Research Policy, 31, 2002. ○ Langlois, Richard "Computers and Semiconductors," Chapter 10 in Steil, Benn, David Victor, and Rochard Nelson, eds., Technological Innovation and Economic Performance, Princeton University Press, 2002: 265-284.
2/20 T	8. General Purpose Technologies Tools: Classification Story: All! Are they all GPTs? Probably. Example: Airplanes (Robert, Andrew) ● Handout including GPT definitions ● Jovanovic, B., & Rousseau, P. L. (2005). General purpose technologies. Handbook of Economic Growth, 1, 1181-1224. ○ Bekar, C., Carlaw, K., and Lipsey, R. (2017). General purpose technologies in theory, application and controversy: a review. Journal of Evolutionary Economics, pages 1–29. ○ Bresnahan, Timothy, and M. Trajtenberg, "General Purpose Technologies 'Engines of Growth'?" Journal of Econometrics, Vol. 65, 1995, pp. 83-108. ○ David, Paul, “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,” American Economic Review Papers and Proceedings, 80(2), 1990: 355-361. ○ LCB Chapter 4. Response 3 due, classes 6 and 7.
II. Spillovers and Appropriability
2/22 Th	9. Market Failures Tools: Spillovers and Appropriability Example: Etsy (Elias, Zander) ● Arrow, Kenneth, "Economic Welfare and the Allocation of Resources for Invention," in Richard Nelson, ed., The Rate and Direction of Inventive Activity, Princeton University Press, 1962, pp. 609-625. Reading Guide.
2/27 T	10. Intellectual Property Rights Tools: Spillovers and Appropriability Example: Pharma and Tech Patents (Andrew, Amy, Ryan) ● Boldrin, M., & Levine, D. K. (2013) “The case against patents.” Journal of Economic Perspectives, 27(1), 3-22. ○ GR Chapter 2 “The Nature and Role of Intellectual Property,” sections 2.2 and 2.7. ○ GR Chapter 6 “Intellectual Property Rights and Firms.” ○ Moser, P. (2013). Patents and Innovation: Evidence from Economic History. Journal of Economic Perspectives, 27(1), 23-44. ○ Hagiu, A., & Yoffie, D. B. (2013). The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super-Aggregators. Journal of Economic Perspectives, 27(1), 45-65. ○ GR Chapter 11. Response 4 due, classes 8 and 9.
3/1 Th	11. Clusters, Spillovers, External Economies Tools: Spillovers and Appropriability Example: Oil and Gas R&D in Houston (Sam, Peter) ● Buzard, Kristy, and Carlino, Gerald, "The Geography of Research and Development Activity in the U.S." Business Review, Federal Reserve Bank of Philadelphia, Third Quarter 2008. ○ Carlino, Gerald and Jake Carr, “Clusters of Knowledge: R&D Proximity and the Spillover Effect,” Business Review, Federal Reserve Bank of Philadelphia, Third Quarter 2013. ○ Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Harvard University Press, 1994. ○ Ellison, G., Glaeser, E., and Kerr, W. (2010). “What causes industry agglomeration? evidence from coagglomeration patterns.” American Economic Review, 100:1195– 1213. ○ Timothy Bresnahan and Alfonso Gambardella, "Old-Economy Inputs for New-Economy Outcomes : What Have We Learned?" chapter 10 in Bresnahan and Gambardella, eds., Building High-Tech Clusters: Silicon Valley and Beyond, 2004: 331-358.
III. Competition and Rents
3/6 T	12. Competition and Innovation Tool: Competition and Rents Example: Smartphones and Freemium Games (Ed, Asim) ● Aghion, P., Bloom, N., Blundell, R., Griffith, R., and Howitt, P. (2005). Competition and innovation: An inverted-u relationship. Quarterly Journal of Economics, 120(2). Reading Guide. ○ Peneder, M., 2012. Competition and Innovation: Revisiting the Inverted-U Relationship. Journal of Industry, Competition and Trade, 12(1), pp.1-5. and following articles in special issue. ○ Kamien, Morton, and Nancy Schwartz, "Schumpeterian Hypotheses," Chapter 2 in Market Structure and Innovation, Cambridge University Press, 1982: 22-48. ○ Vives, X. (2008). Innovation and competitive pressure. Journal of Industrial Economics, 56(3):419–469. ● Response 5 due, classes 10 and 11.
3/8 Th	Class Cancelled 13. Winner Take All Markets Tool: Competition and Rents Classification Example: Superstars (Peter, Daniel) ● Rosen, S. (1981). The Economics of Superstars. The American Economic Review, 71(5), 845-858.
	SPRING BREAK
IV. Complements
3/27 T	14. Jevons’ Paradox Tools: Complements on the Supply Side Example: Jevons’ Paradox (Justin, Kyle) ● Glaeser, E (2011). Triumph of the City. Penguin Publishing, pp. 37-40. ● Berkhout, P. H., Muskens, J. C., & Velthuijsen, J. W. (2000). Defining the rebound effect. Energy policy, 28(6-7), 425-432, read section 3.4, skim the rest. ○ Alcott, B. (2005). Jevons' paradox. Ecological economics, 54(1), 9-21. ● No response due.
3/29 Th	15. Direct Network Effects Tools: Complements on the Demand Side Example: (Win, Clara) ● Schmalensee, R. (2011). Jeffrey Rohlfs' 1974 Model of Facebook: An Introduction. Competition Policy International, 7, 301-313. ● Jeffrey Rohlfs, "Early Telephone" Chapter 7 in Bandwagon Effects, MIT Press, 2001. ○ Rohlfs, J. (1974). A theory of interdependent demand for a communications service. The Bell Journal of Economics and Management Science, 16-37. ○ Puffert, Douglas, "The Standardization of Track Gauge on North American Railways, 1830-1890," The Journal of Economic History, Vol. 60, No. 4, December 2000, pp. 933-960. ○ Cremer, Jacques, Patrick Rey, and Jean Tirole, "Connectivity on the Commercial Internet," Journal of Industrial Economics, Vol. 48, No. 4, December 2000, pp. 433-472.
4/3 T	16. Indirect Network Effects and Platforms Tools: Complements on the Demand Side Example: Netfix vs. Hulu (Anu, Danny) ● Handout: The Personal Computer ● Rysman, M. (2009). The economics of two-sided markets. Journal of Economic Perspectives, 23(3), 125-43. ○ Bresnahan, Timothy, and Shane Greenstein, "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, 47(1),1999: 1-40. ○ Arthur, W. Brian, "Competing Technologies, Increasing Returns, and Lock-in by Historical Events," Economic Journal, 99(1), 1989: 116-131. ● Response 6 due, classes 14 and 15.
4/5 Th	17. Long Tails and Aggregators Tools: Complements on the Demand Side Example: Podcasting (Zander, Fritz) ● Handout ● Chris Anderson (2004) “The Long Tail,” original Wired article slightly modified on ChangeThis. ● Waldfogel, J. (2017). How Digitization Has Created a Golden Age of Music, Movies, Books, and Television. Journal of Economic Perspectives, 31(3), 195–214. ○ Chiou, L., & Tucker, C. (2017). “Content aggregation by platforms: The case of the news media.” Journal of Econ. & Management Strategy. ○ Boik, A., Greenstein, S., & Prince, J. (2016). “The Empirical Economics of Online Attention” (No. w22427). National Bureau of Economic Research. ○ Farhad Manjoo (2017) “How Netflix Is Deepening Our Cultural Echo Chambers,” New York Times.
IV. Theory of the Firm
4/10 T	19. Finance and Bubbles Tools: Theory of the Firm Example: Dotcom Bubble (Kush, Zena) ● Carlota Perez (2002), "Financial Capital and Production Capital," Chapter 7 in Technological Revolutions and Financial Capital, Edward Elgar: 71-80. ○ Perez, Carlota, "The Sequence and its Driving Forces," Chapter 14 in Technological Revolutions and Financial Capital, Edward Elgar, 2002: 151-158. ○ Jovanovic, Boyan and Peter Rousseau, "Mergers as Reallocation," NBER Working Papers 9279, 2002. ● Response 7 due, classes 16 and 17.
4/12 Th	20. Finance and Management of Intangibles Tools: Theory of the Firm Example: Social Media as a Franchise (Xhonia, Dylan) ● Jonathan Haskel and Stian Westlake (2018), Chapter 8 and Chapter 9 in Capitalism Without Capital, Princeton University Press.
4/17 T	21. Blockchain Basics and Bitcoin Tools: Theory of the Firm Example: Blockchain and Bitcoin (Asim, Bryson) ● Timothy B. Lee (2017) "Want to really understand how bitcoin works? Here’s a gentle primer." Ars Technica, Dec. 15. ○ Böhme, Rainer, Nicolas Christin, Benjamin Edelman and Tyler Moore (2015). “Bitcoin: Economics, Technology, and Governance.” Journal of Economic Perspectives, 29(2): 213–38. ○ Primavera De Filippi, Benjamin Loveluck (2016). “The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure.” Internet Policy Review, 2016, 5 (3) . ○ E J Spode (2017) “The great cryptocurrency heist,” Aeon. ● Response 8 due, classes 19 and 20.
4/19 Th	Class Cancelled 18. Entrepreneurs and Firms Tools: Theory of the Firm Example: (Taylor, Ryan) ● Kerr, W. R., Nanda, R., & Rhodes-Kropf, M. (2014). Entrepreneurship as Experimentation. Journal of Economic Perspectives, 28(3), 25–48. ○ Murphy, Kevin, Andrei Shleifer, and Robert Vishny, "The Allocation of Talent: Implications for Growth," Quarterly Journal of Economics, 106(2), 1991: 503-530. ○ Baumol, William, Chapter 5 in The Free Market Innovation Machine, Free Press, 2002.
4/24 T	22. Blockchain Applications Tools: Theory of the Firm Example: Transforming Various Industries (Kyle, Justin, Sahil) ● Union Square Ventures Blockchain App Stack Thread several interesting pieces on blockchain ideas from a venture capital firm with Wesleyan connections. The two pinned at the top, “Fat Protocols” and “The Blockchain Application Stack” are classics in this area. More recent stuff is below. ○ Werbach, Kevin D. (2016), “Trustless Trust” Available at SSRN. Especially Sections I. Introduction and IV. Trustless Trust in Action.
V. Growth Theory: Technology and the Macroeconomy
4/26 Th	23. China Tools: Technological Revolutions Example: (Dylan, Nick, Robert) ● "Economists understand little about the causes of growth." Economist, 23 Apr. 2018. ● Wei, S. J., Xie, Z., & Zhang, X. (2017). From" Made in China" to" Innovated in China": Necessity, Prospect, and Challenges. Journal of Economic Perspectives, 31(1), 49-70. ○ Innovation Policy: A Guide for Developing Countries, World Bank, 2010, Chapter 5 pp. 135-164. ○ Gelabert, Fosfuri, and Tribó. “Does the Effect of Public Support for R&D Depend on the Degree of Appropriability?” Journal of Industrial Economics 57(4): 736-767. ○ Baumol, Chapter 9 and 10.
5/1 T	24. Productivity and Growth Tools: Complements on the Supply Side Example: (Zena, Edward) ● Syverson, C. (2011). What determines productivity? Journal of Economic Literature, 49(2):326–365, esp. sections 2 and 3. ○ Arnold C. Harberger, “A Vision of the Growth Process,” American Economic Review, March, 1998: 1-32. ○ Carvalho, Vasco M. 2014. “From Micro to Macro via Production Networks.” Journal of Economic Perspectives, 28(4): 23–48. ○ Jorgenson, D.W., Ho, M.S. & Samuels, J.D., 2011. Information technology and U.S. productivity growth: evidence from a prototype industry production account. Journal of Productivity Analysis, 36(2), pp.159-175. ○ David, Paul, “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,” American Economic Review Papers and Proceedings, 80(2), 1990: 355-361. ● Response 9 due, classes 21 and 22.
5/3 Th	25. Robots and Jobs Tools: Complements on the Supply Side Example: Automation (Bryson, Sahil, Jonathan) ● Autor, D., & Salomons, A. (2018). Is automation labor-displacing? Productivity growth, employment, and the labor share. Brookings Papers on Economic Activity. ○ Autor, D. H. (2015). Why are there still so many jobs? The history and future of workplace automation. The Journal of Economic Perspectives, 29(3), 3–30. ○ Brynjolfsson, E., McAfee, A., & Spence, M. (2014). Labor, Capital, and Ideas in the Power Law Economy. Foreign Affairs, 93, 44. ○ Erik Brynjolfsson and Andrew McAfee, The Second Machine Age, W.W. Norton, 2014, especially Chapters 9 and 11. ● Response 10 due, class 23.
5/8 T	26. The Cost Disease Tools: Complements on the Supply Side Example: (Clara, Nick, Samuel) ● Baumol, William (2002), The Free Market Innovation Machine, Free Press, Chapter 15. ○ Lipsey, R. G., Carlaw, K. I., & Bekar, C. T. (2005). Economic Transformations: General Purpose Technologies and Long-Term Economic Growth. Oxford University Press. Chapter 4 appendix. ● Response 11 due, class 24-25.
	● Response 12 due, class 26, by date of registrar’s scheduled final exam. ● Final Project due by date of registrar’s scheduled final exam.