knowledge and economic progress

the role of social technologies

Thráinn EggertssonUniversity of Iceland & New York University

Prepared for a conference on Dynamics of Institutions in Perspective: Alternative Conceptions and Future Challenges

University of Paris, October 3-4, 2008

introduction

• purpose of paper: • Q = fΨ(As, Ap; Xs, Xp)

• sections:

• social science as useful knowledge

• the relationship between As and Ap in production

• policy models and beliefs about social technologies

• empirical case: evolution of modern biotechnology

definitions

institutional policy: use of institutions—rules, enforcement—and persuasion to create behavioral regularities (i.e. social mechanisms/system/organization)

social technology: how-to knowledge—models of how to use rules, enforcement, and persuasion to create or influence social mechanisms

policy models: beliefs held by both rule makers and the ruled about their opportunity sets; involve ideas about social technologies

ΩandλMokyr’s useful knowledge

• The Enlightenment and useful knowledge

• definitions of Ωandλ

• Ω: measurement/observations, and natural science

• λ: how-to practical knowledge, and technology

• co-evolution of Ωandλ

including social knowledgein Ωandλ

• Ωs observations, rules of thumb, social science• national income accounts; the Penn World Table

• general equilibrium theory; new institutional economics; managing the commons; political economy; Acemoglu & Robinson’s: Economic origins of dictatorship and democracy

• λs how to design and operate social mechanisms• legal practices; enforcement; rules of IMF and World Bank;

• legal transplants; applied macroeconomics

• comparing relative growth of λs and λp over time

the relationship betweenλs and λp in production

• transaction function & transformation function• North and Wallis 1994

• Q=fΨ(Ap, As; Xp, Xs, D)

• Ψ: the social background (exogenous)• physical background not of (equally) great interest

• social organization depends on λp

• technical change: λs (and As) are not passive

policy models with λs

of high variance & error

• policy models: • incorporate: endowments, interests, and

(uncertain) knowledge of social technologies

• changing ideas about workable As: the theory of macroeconomics policy—a case history

• successful institutional policy: • choice of effective rules and enforcement

structures

• coordination of policy models

biotechnology:finding effective Ψ and As

• public rules for introducing new property rights involve:• rule makers, right holders, and duty bearers

and often induce:• private rules as complements or substitutes to

public measures

• technical or social change: which comes first?

biotechnology:the takeoff and its

implications• advances in biological sciences and new

instruments

• lions in the way:• control of inputs• control of outputs• vertical organization of the industry

• Demsetz’s 1967 insight

biotechnology: the battle ofideas and interests—the

courts• inputs:• Moore v. the Regents of the University of California

Supreme Court of California (1998, 1990)• who owns valuable cell line established from a

patient’s white blood cells without his knowing?

• outputs:• Diamond v. Chakrabarty U.S. Supreme Court

(1980)• can genetically modified microorganisms be

patented?• are they a manufacture or a composition of matter?

biotechnology: the battle of ideas and interests—

Congress• Bayh-Dole Act, 1980• should universities, non-profits, and small

businesses be allowed to patent government funded inventions?

• universities adjust the institutions of research

searching λ for effective As and Ap (1)

• Ap : questions about the effectiveness of major research programs: new drugs for controlling the genetic causes of diseases• already billions of dollars invested in research

but some scientists question the basic idea

searching λ for effective As and Ap (2)

• As: the consequences of expanding IPR • a revolution in the Republic of Science?• will slow down progress in natural science?

• will slow down progress in knowledge economy?

• ideal types versus actual systems• private solutions, how important are they?• reliable feedback lacking

• reforming IPR• is fine tuning by government agencies

practicable?

searching λ for effective As and Ap (3)

• As : the effectiveness of for-profit research firms• an effective business model? • why was the model not used during the 2nd

industrial revolution?

Conclusion: technical change

λs versus λp

• How does λs differ fromλp ?

• effectiveness of social mechanisms depends on individual policy models, which incorporate personal beliefs

• the effectiveness of As depends on Ψj but the effectiveness of Ap does not depend on local context (or only trivially so)

• testing of As almost always “on-line” tests