Knowledge that Transforms

This paper evaluates the effects of patent protection on pharmaceutical innovations for 26 countries that established pharmaceutical patent laws during 1978–2002. Controlling for country characteristics through matched sampling techniques to establish two proper comparison sets among 92 sampled countries and through country-pair fixed-effects regressions, this study yields robust results. National patent protection alone does not stimulate domestic innovation, as estimated by changes in citation-weighted U.S. patent awards, domestic R&D, and pharmaceutical industry exports. However, domestic innovation accelerates in countries with higher levels of economic development, educational attainment, and economic freedom. Additionally, there appears to be an optimal level of intellectual property rights regulation above which further enhancement reduces innovative activities.

Beginning in the late 1980s, American corporations began increasingly linking the compensation of central research personnel to the economic objectives of the corporation. This paper examines the impact of the shifting compensation of the heads of corporate research and development. Among firms with centralized R&D organizations, a clear relationship emerges: more long-term incentives (such as stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be associated with more patent awards and patents of greater originality. Short-term incentives appear to be unrelated to measures of innovation.

Are there productivity spillovers from FDI to domestic firms, and, if so, how much should host countries be willing to pay to attract FDI? To examine these questions, we use a plant-level panel covering U.K. manufacturing from 1973 through 1992. Consistent with spillovers, we estimate a robust and significantly positive correlation between a domestic plant's TFP and the foreign-affiliate share of activity in that plant's industry. Typical estimates suggest that a 10-percentage-point increase in foreign presence in a U.K. industry raises the TFP of that industry's domestic plants by about 0.5%. We also use these estimates to calculate the per-job value of these spillovers at about £2,400 in 2000 prices ($4,300). These calculated values appear to be less than per-job incentives governments have granted in recent high-profile cases, in some cases several times less.

We examine inference in panel data when the number of groups is small, as is typically the case for difference-in-differences estimation and when some variables are fixed within groups. In this case, standard asymptotics based on the number of groups going to infinity provide a poor approximation to the finite sample distribution. We show that in some cases the t-statistic is distributed as t and propose simple two-step estimators for these cases. We apply our analysis to two well-known papers. We confirm our theoretical analysis with Monte Carlo simulations.

A growing literature documents important gains in asset return volatility forecasting via use of realized variation measures constructed from high-frequency returns. We progress by using newly developed bipower variation measures and corresponding nonparametric tests for jumps. Our empirical analyses of exchange rates, equity index returns, and bond yields suggest that the volatility jump component is both highly important and distinctly less persistent than the continuous component, and that separating the rough jump moves from the smooth continuous moves results in significant out-of-sample volatility forecast improvements. Moreover, many of the significant jumps are associated with specific macroeconomic news announcements.

We endogenize preferences using the “indirect evolutionary approach”. Individuals are randomly matched to play a two-person game. Individual (subjective) preferences determine their behaviour and may differ from the actual (objective) pay-offs that determine fitness. Matched individuals may observe the opponents’ preferences perfectly, not at all, or with some in-between probability. When preferences are observable, a stable outcome must be efficient. When they are not observable, a stable outcome must be a Nash equilibrium and all strict equilibria are stable. We show that, for pure-strategy outcomes, these conclusions are robust to allowing almost perfect, and almost no, observability, with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability (despite being stable with no observability).

This volume contains the Papers and Proceed ings of the one hundred and nineteenth annual meeting of the American Economic Association.The Proceedings record the business activities of the Association in 2006, the annual membership meetings, and the April (2006) and January (2007) meetings of the Association's officers and committees.The Papers constitute the greater part of the volume.They comprise contributions that fill roughly the same number of pages as one and a half regular issues of the American Economic Review.We will take this opportunity to answer a number of commonly asked questions about the Papers.Who chooses the authors?About a year in advance, the Association's President-elect, acting as program chairman, decides on the topics for which sessions will be organized.This is done after consultation and comment, both volunteered and solicited, from a wide range of individuals.(A Call for Papers appears in the summer and fall issues of the Journal of Economic Perspectives.)The President-elect invites some sessions and, with the help of a Program Committee, selects most of the sessions from the proposals received.Each session organizer in turn invites several persons (usually three or four) to give papers on the theme of the session and asks others to give comments on the papers.The program chairman decides at the time of organization which sessions will be included in this volume.Space limitations restrict the number of printed sessions.This year we are printing 28 sessions, although a total of 180 sessions were sponsored, either solely by the American Economic Association or jointly with allied societies.Are discussants' comments published?Comments and discussions usually are not published.For all sessions, names and affiliations of commentators are printed at the start of each session, permitting readers especially interested in particular comments to write to the commentator for a copy of the discussion.