the new economics of science

8/14/2019 The New Economics of Science

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Outline Key policy challenges

The economic context

A model

What drives disclosure?

Public funding and restrictions

Future directions



Key policy challenges Commercial interference in science

Commercial pay for academics

Barriers posed by intellectual propertyprotection

Patent thickets

Reach-through rights

Conditions for public funding

Open access to knowledge



Oncomouse Leder & Stewart, Harvard develop the “Oncomouse” in 1984

Revolution” in the use of genetically engineered research mice as a tool for lifesciences progress

First mouse with genes inserted to predispose mouse to cancer

Oncomouse is a “dual” discovery & serves as foundation for both on-goingscientific discovery and immediate use.

Oncomouse disclosed as a “patent-paper pair”

four years after publishing in Cell (1984)

Harvard is granted US patent which is licensed to Du Pont who distribute themouse with controversial restrictions

Oncomouse patent enforcement by DuPont

Strong reach through claim

Limits informal exchange of research development

Costs to scientific reputation



The economic context Cumulative knowledge is the driving force of economic

growth

Knowledge has a dual impact

Science is an institution to drive cumulative knowledge



TaxonomyImmediate usefulness

Low High

Scient

ific

Merit

Low ? Edison

High Bohr Pasteur

From Stokes (1996)



A frontier

Scientific

Merit

Immediate Usefulness



Pure scientific motives

Scientific

Merit




Pure commercial motives

Scientific

Merit




Mixture

Scientific

Merit




Incentives The interaction between the scientific and commercial reward

systems drive balance in project selection

How does that interplay impact on the disclosure of knowledge

produced?

The mere production of knowledge does not guarantee that otherswill be able to exploit that knowledge (Polanyi; Mokyr) Tacit Knowledge

Trade Secrecy

Open Science and Patenting are two institutional arrangements

that require the disclosure of knowledge (Dasgupta and David) By and large, the spheres of knowledge governed by Open Science

and Patenting are assumed to be relatively independent

Secrecy is the enemy of persistent growth



The Disclosure of Knowledge in Pasteur’s Quadrant A given piece of new knowledge may simultaneously have potential as a

great scientific discovery and as an important source of commercial

returns

Multiple potential disclosure outcomes No systematic disclosures (Secrecy)

Patenting (Commercial Science)

Scientific Publication (Open Science)

Both Patenting and Scientific Publication (Patent-Paper Pairs)

A disclosure strategy is the choice among these disclosure choices, and

will be grounded in the microeconomic, strategic, and institutional

environment in which knowledge is funded, developed and diffused



Science of smells “Anyone who cracks the code to know just how molecules of a

certain formation produce a certain smell is liable, not only toadvance basic human knowledge, but also to gain a great deal of money.” (Turin, 2003)

Three Nobel prizes for perfume

E,g, Ryoji Noyori \shared the 2001 Nobel Prize in chemistry for the“asymmetric” synthesis of new molecules such as menthol (> 400publications & > 100 patents

Secrecy also widespread

Individual “noses” who create the perfume “recipes” arehighly paid but secretive (although their claim on royalties issubject to legal challenge – so credit is complex)



How often are scientific research publications

part of patent-paper pairs?

# papers

# paired

with

patents

% paired

publications

Publications by public sector

funded researchers 235 106 45%

Publications by public and private

sector funded researchers70 41 59%

Publications by private sector

funded researchers36 24 67%

Starting with publications: From a sample of 341 research publications (all the

research articles from the leading life science journal Nature Biotechnology

between 1997 and 1999). Examine which publications are also disclosed in

patents. (Murray and Stern 2007)



How often are patents part of a

patent-paper pairs?

# patents# paired with

publications

% paired

patents

Patents by public sector funded

researchers1308 1099 84%

Patents by public and private sector

funded researchers187 164 88%

Patents by private sector funded

researchers2775 1347 49%

Starting with patents: From the full population of human gene patents (US patents

identified using bioinformatics methods that disclose and claim a human gene sequence

or fragment (Jensen and Murray 2005), we examine which patents are also disclosed in

publications. (Huang and Murray 2008 ).



Research Questions What are the key factors shaping the disclosure of

knowledge in the form of scientific research publications,

patents, or both?

A Theory of Patent-Paper Pairs

How does disclosure strategy depend on the disclosure

environment?

Patentability Requirements?

Public versus Private Funding? The Potential for Licensing in the Market for Ideas?

The Impact of Scientific and Market Competition?



Model Ingredients Scientists are different

Firms are not

They need each other

Their interaction determines disclosures and projects



Scientists prefer disclosure over secrecy– they are willing to trade off

salary in return for opportunities to control & disclose their work

Note: Survey respondents are AAAS members and free registrants on the Science magazine Web site. Kelly Scientific Resources also participated in the survey by polling some 12,000 of their

employees, whose responses were combined with the rest of the survey data.

Source: http://sciencecareers.sciencemag.org/

Scientists are different



Scientists are different Preferences not simply related to greater control over

research agenda provided in academic vs. industry (Aghion,Dewatrapoint & Stein, 2007) but also opportunity topublish.

Estimates from a study of multiple job offers for PhDscientists (Stern, 2006) imply that individuals will accept20% less, on average, if they are given the opportunity toand incentives to publish in the public scientific literature.

Disclosure in the form of patents does not provide a similar “preference” effect for researchers (assuming they are notparticipating in the rents from patent licensing) giving thefollowing disclosure preference ordering



Scientific Researchers and

Private Research Investors Regardless of potential commercial returns, scientific researchers realize

benefits from knowledge disclosure through scientific publications Intrinsic preferences for kudos

Signaling to both private and public employers

Regardless of potential impact on the scientific community, privateresearch investors realize benefits through the protection of ideas

Formal intellectual property rights (patents)

Trade secrecy and inimitability

Researcher preferences for scientific disclosure may conflict with the

commercial objectives of research funders May be willing to trade of wages for ability to publish in the scientific

literature

Disclosure strategy results from the contract between researchers and

research funders when bargaining over compensation



Negotiations Scientist and firm negotiate over:

Wages

Whether to patent or not

How much publication to allow

Patenting decision driven by whether this deters or

promotes (through disclosure) entry

Publication decision balances scientific kudos and entry

promotion



Under what conditions does the firm and researcher

choose each of the following disclosure regimes?Publication disclosure (d )

0 1

Patent

(i)

1Commercial

Science

Patent-Paper

Pairs

0 Secrecy Open Science



Complete Overlap Suppose that the knowledge disclosed in a patent and

publication were exactly the same.

Then if decide to patent, there is no additional cost in

publishing and vice versa.

Would only observe secrecy and patent-paper pairs.



Complementarity: when patents and publications are partially

overlapping in terms of disclosure, the patent-paper regime expands

when the strength of intellectual property protection increases…

1

1

Secrecy

Commercial

Science

Patent-Paper

Pairs

Open

Science

Net benefits

from Patenting

Net benefits of publishing



Sources of Complementarity Fidelity: as degree of overlap grows, this increases patent

-paper pairs relative to other regimes.

Intuition: the marginal cost of disclosure is lower if there is a

patent as less entry-facilitating knowledge is likely to begenerated.

Patent effectiveness: as the effectiveness of a patent in

blocking entry rises, this increases patent-paper pairs

relative to other regimes.

Intuition: if a patent can actually block entry, the disclosures

are not commercially harmful.



Possibility of Zero Wages Wages fall with publication opportunities (Stern, 2004)

Wages might be driven to zero when the potential to earn

scientific kudos is high

Additional driver of complementarity:

Stronger IP increases commercial return

Only way to transfer utility to the scientist is through greater

publication

Basic economics: stronger IP protection drives greater

openness in science



Dynamics Suppose that scientists and firms live two periods

Overlap with other generations

Future kudos generated by citation

Past knowledge reduces future capital costs

Full transfer (under contracting): zero future costs

Partial transfer (through publication): lower future costs

Firm owns patent and can license it to next generation

Disclosure, fee & wages now a 3-way negotiation Past publication gives future pair an easier work-around if there is

no license – work-around possible (on same research path) with

some probability.



Substitutability

1

1

Secrecy

Commercial

Science

Patent-Paper

Pairs

Open

Science

Net benefits

from Patenting

Net benefits of publishing



Other implications Look only at symmetric dynamic equilibria

Inter-temporal complementarity

Only worthwhile publishing if expect future scientific work to

be published (so can earn a citation)

Therefore, always exists a commercial science or secrecy

equilibrium.

Domain of open science is expanded as a result of

substitutability

Key issue: who should own IP rights?



Human Genome Project The Human Genome draft was published in early 2001,

providing almost-comprehensive location and sequence

information for more than 20,000 individual genes

“Without a doubt, this is the most important, most wondrous mapever produced by humankind.” (Bill Clinton, 2000)

Two principal routes for documenting further explorations of

individual genes

Scientific publications -- kudos & naming rights

Patent disclosures – protection of discoveries and licensing rights

What do we know today about the Human Genome? How has

that information been disclosed?



Chromosome 10:

Multiple disclosure outcomes

over similar types of knowledge

Both public and private researchers observed in each of the three disclosure regimes, though

private researchers more likely to be associated with patents or PP Pairs – overall, ~25% of

the Human Genome is protected by formal IP rights (Murray and Jensen)

G e

n e P a t e n t

Yes 3 199

No 400 453

No Yes

GenePublication



Public Funding Suppose there existed a liquidity constrained public funder

who cared about immediate use and cumulative knowledge

When will public funds encourage disclosure and increase

the degree of innovation?

Kim Carr: all publicly funded research should be open

Should publicly funded projects be permitted to obtain IP

protection (e.g., the Bayh-Dole Act)?

Do the answers to these questions hinge on the project-

specific information available to the public funder?



No public fundingbS

v v

Projects with positive

commercial return are

funded; i.e., v > v as

defined by:

Patent-Paper

Pairs (d > 0)

Commercial

Science

(d = 0)

No funding

Funded projects with high

enough scientific kudos

permit publication; i.e.,

where:

0



Public subsidybS

v v

A public subsidy to

private firms may

increase the number of

funded projects butthere is a large degree

of crowding out.

However, it does

increase disclosure.

Need to select on the

basis of project type.

Patent-Paper

Pairs (d > 0)

Commercial

Science

(d = 0)

No funding

0



Pre-Bayh-Dole (high K )bS

v v

Restricted public

funding:

(i) no commercial

returns to scientist; and(ii) full disclosure

Select on basis of

scientific merit (bS )

Relatively high K

‘Opt out’ to secure

commercial returns

Private

funding (PPP)

(d = D)

Private

funding (CS)

(d = 0) No funding

0

Public funding

(OS)

(d = D)



Post-Bayh-Dole (high K )bS

v v

Unrestricted public

funding:

(i) allow commercial

returns to scientist; and(ii) full disclosure

Select on basis of

scientific merit (bS )

Relatively high K

Private

funding (CS)

(d = 0)

No funding

0

Public funding (PPP)

(d = D)



Conclusions The disclosure strategy of privately funded research is grounded in the

disclosure environment and is shaped by the bargaining over disclosure

between scientific researchers and their funders

Rather than an anomaly, patent-paper pairs emerge as an equilibrium

outcome in which scientific researchers trade off wages in order to gainscientific credit, while investors (private or public) seek to retain the

ability to capture value from these “dual-purpose” discoveries

Interestingly, in most circumstances, increases in the strength of formal

intellectual property protection enhances the scope for patent-paper

pairs.

More generally, the model suggests that the key requirements for

cumulative disclosure in the aggregate requires a careful evaluation of

the strategic foundations of disclosure strategy.

the new economics of science

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