We study the effects of antitrust policy in industries with continual innovation. Antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply, holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We also show that, in some cases, the tension does not arise, and policies that protect entrants necessarily raise the rate of innovation

We investigate why new, high-risk technologies can attract excessive and often unprofitable investment. We develop an equilibrium model in which rational, risk-averse agents overinvest in a risky technology, possibly to the point that its expected return is negative. Overinvestment results from relative wealth concerns which arise endogenously from the imperfect tradability of future endowments. Competition over future consumption leads to an indirect utility for wealth with “keeping up with the Joneses” properties that can induce herding. Because overinvestment increases with the risk of the technology, our model can explain why new, risky technological innovations may promote investment bubbles

This paper empirically investigates the effect of “informed finance” on technological change. The theoretical literature offers conflicting predictions on whether the information of financiers fosters or inhibits firms’ innovation. Using data from a sample of Italian manufacturing firms, we find that the information of firms’ main banks, proxied by the duration of credit relationships, promotes innovation. This positive effect is economically and statistically more significant for product than for process innovations. Nonetheless, the role of relationship banks in innovation is quite unsophisticated: they do not foster internal research but rather fund the relevant investments that the introduction and acquisition of new technologies entails

Victor Aguirregabiria of U of Toronto reviews “Entrepreneurship, Growth, and Innovation: The Dynamics of Firms and Industries” by Enrico Santarelli,. The EconLit Abstract of the reviewed work begins “Thirteen papers explore the factors that combine with entrepreneurship and innovation to influence firm and industry dynamics. Papers discuss a market model of perfect competition under uncertainty--heterogeneous firms and technologies; industry dynamics a la Stackelberg with stochastic capital accumulation; Gibrat's law--an overview of the empirical literature; entrepreneurship in the old and new Europe; new firm formation and the region--empirical results from the United States; research and development intensity and the relationship between firm size and growth in Germany; Gibrat's Law in a medium-technology industry--empirical evidence for Italy; entrepreneurship, innovation, and the evolution of industrial districts; innovation premium and the survival of entrepreneurial firms in the Netherlands; foreign presence, technical efficiency, and firm survival in Greece--a simultaneous equation model with latent variables approach; entrepreneurship, industrial restructuring, and unemployment in Portugal; transferring the risk of failure, entrepreneurship, and firm dynamics in Turkish manufacturing; and what is the best policy for innovative entrepreneurship. Santarelli is Professor of Economics at the University of Bologna and Research Professor at the Max Planck Institute of Economics. Author and subject indexes

Marc-Andreas Muendler of University of California, San Diego and CESifo reviews “Multinational Firms, Innovation and Productivity” by Davide Castellani, Antonello Zanfei,. The EconLit Abstract of the reviewed work begins “Explores how and why firms differ in internationalization, innovation, and productivity, and examines the implications of this diversity within industries. Discusses views on multinational firms and innovation; the double network structure of multinational firms--a review of the evidence; heterogeneity and international involvement; heterogeneity across and within multinational firms; multinational firms and spillovers--theoretical, methodological, and empirical issues; and the search for horizontal spillovers from multinationals--the role of firms' heterogeneity. Castellani is Professor of Applied Economics, and Zanfei is Professor of Industrial Economics, at the University of Urbino. Index

Murphy and Topel (2006, henceforth MT) develop methods for valuing health improvements based on individuals’ willingness to pay. Our results indicate that past health improvements have been enormously valuable. We estimate that gains in life expectancy over the twentieth century were worth more than $1.2 million per person to the current US population, and that rising longevity added about $3.2 trillion per year to national wealth between 1970 and 2000, as mortality rates among older adults fell sharply. Looking ahead, we estimate that even modest progress against major lifethreatening diseases would be extremely valuable. For example, the two most prominent causes of disease-related mortality in the United States are cardiovascular diseases (CVD) and cancer. We find that a permanent 10 percent reduction in mortality rates from CVD would be worth about $5.7 trillion to current and future Americans, while similar progress against cancer would be worth $4.7 trillion. A 10 percent reduction in overall mortality would be worth about $18 trillion. If past progress is an indication, there is little doubt that these or greater gains will eventually be realized. The questions are when and at what cost? In comparison to these prospective benefits of health progress, expenditures on basic and applied health research in the United States are modest. Public support for basic biomedical research—mainly through the National Institutes of Health (NIH) and associated grants to research universities—totals about $28 billion annually. Adding expenditures on health research and development (R&D) by private institutions and by pharmaceutical and medical products companies brings the total for basic and applied health research to about $60 billion Social Value and the Speed of Innovation

Roger Bolton of Williams College reviews “Geography and Economy: Three Lectures” by Allen J. Scott,. The EconLit Abstract of the reviewed work begins “Three lectures, which formed the basis of the Clarendon Lectures in Geography and Environmental Studies presented at Oxford University in May 2005, explore several theoretical and practical questions found at the juncture where geography and economy meet. Discusses the division of labor and the ways in which it intertwines with locational outcomes at every scale of analysis; the creative field as a grid of spatial relationships that functions as a powerful stimulus of entrepreneurship and innovation; and the regional bases of economic take-off and development. Scott is Distinguished Professor of Public Policy and Geography at the University of California, Los Angeles. Index

Ostensibly, the SEC's new round of regulatory activity is motivated by a bout of well-publicized business scandals and an explosive increase in financial innovations and instruments. Many critics of the “new” SEC question the proportionality and usefulness of the responses, which move the SEC well beyond reliance on disclosure and promotion of transparency. Others argue that more heavy-handed and far-reaching regulation is necessary given the vast changes in financial markets, the increasing importance of (largely unregulated) hedge funds and private equity, and corporate scandals that allege fraud and deception. This paper provides a rationale for studying recent regulatory changes and for addressing the overarching question of how to define the boundaries of SEC intervention in financial markets. The study provides an overview of papers in this special issue and concludes with suggestions for how policymakers can use research to better evaluate the costs and benefits of regulation

Geography, flat or not, creates special relationships between buyers and sellers who reside in the same neighborhoods, but Friedman turns this metaphor inside-out by using The World is Flat to warn us of the perils of a relationship-free world in which every economic transaction is contested globally. In his “flat” world, your wages are set in Shanghai. In fact, most of the footloose relationship-free jobs in apparel and footwear and consumer electronics departed the United States several decades ago, and few U.S. workers today feel the force of Chinese and Indian competition, notwithstanding the alarming anecdotes about the outsourcing of intellectual services. Of course, standardization, mechanization, and computerization all work to increase the number of footloose tasks, but innovation and education work in the opposite direction, creating relationship-based activities—like the writing of this review. It may only be personal conceit, but I imagine there is a reason why the Journal of Economic Literature asked me to do this review