经济代写|宏观经济学代写Macroeconomics代考|ECON305

经济代写|宏观经济学代写Macroeconomics代考|Interest groups as barriers to innovation

There’s another way in which monopolies can affect innovation. Imagine that monopolists use some of their profits to actually block the entry of new firms with better technologies – say, by paying off regulators to bar such entry. In fact, it may be a better deal than trying to come up with innovations! If that’s the case, then monopoly profits may actually facilitate the imposition of these barriers, by giving these monopolists more resources to invest in erecting barriers.

Monopolies are particularly dangerous in this regard, because they tend to be better able to act on behalf of their interests. Mancur Olson’s The Logic of Collective Action Olson (2009) argues that policy is a recurrent conflict between the objectives of concentrated interest groups and those of the general public, for which benefits and costs are typically diffused. According to Olson, the general public has less ability to organise collective action because each actor has less at stake, at least relative to concentrated interest groups, which thus have the upper hand when designing policy. In short, monopolies have an advantage in organising and influencing policy. One implication of this logic is that the seeds of the decline of an economy are contained in its early rise: innovation generates rents that help the development of special-interest lobbies that can then block innovation. This is the argument raised by Mancur Olson, again, in his 1983 book The Rise and Decline of Nations Olson (1983).

More recently, the theme of incumbents blocking innovation and development has been taken up by other authors. Parente and Prescott (1999) develop a model capturing this idea, and argue that the effects can be quantitatively large. Restricting the model so that it is consistent with a number of observations between rich and poor countries, they find that eliminating monopoly rights would increase GDP by roughly a factor of 3 ! Similarly, in their the popular book Why Nations Fail,Acemoglu and Robinson (2012) argue, with evidence from a tour de force through history and across every continent, that the typical outcome is that countries fail to develop because incumbents block innovation and disruption.

经济代写|宏观经济学代写Macroeconomics代考|Scale effects

The models of the previous section delivered a specific but fundamental result: scale effects. In other words, they predict that the growth rates will increase with the size of the population or markets. Intuitively, as we discussed, there are two sides to this coin. On the supply side, if growth depends on ideas, and ideas are produced by people, having more people means having more ideas. On the demand side, ideas are a fixed cost – once you produce a blueprint for a flying car, you can produce an arbitrary amount of flying cars using the same blueprint – and having a larger market enables one to further dilute that fixed cost.

The big question is: do the data support that prediction? Kremer (1993) argues that over the (very) long run of history the predictions of a model with scale effects are verified. He does so by considering what scale effects imply for population growth, which is determined endogenously in his model: population growth is increasing in population. He goes on to test this by checking that, using data from $1,000,000$ B.C. to 1990 , it does seem to be the case that population growth increases with population size. He also shows that, comparing regions that are isolated from each other (e.g. the continents over pre-modern history), those with greater population displayed faster technological progress.

This suggests that scale effects are present on a global scale, but that remains controversial. For instance, Jones (1995) argues that the data does not support the function in (6.2). For example, the number of scientists involved in R\&D grew manifold in the post-World War II period without an increase in the rate of productivity growth. Instead, he argues that the evidence backs a modified version of the innovation production function, in which we would adapt (6.2) to look like this:
with $\beta>0$. This means that ideas have a diminishing return as you need more people to generate the same rate of innovation. In a world like this, research may deliver a constant rate of innovation (such as the so-called Moore’s law on the evolution of the processing capability of computers), but only due to substantially more resources devoted to the activity. This model leads to growth without scale effects, which Jones (1995) refers to as semi-endogenous growth.

It is also worth thinking about what scale effects mean for individual countries. Even if there are scale effects for the global economy, it seems quite obvious that they arent really there for individual countries: it’s not as if Denmark has grown that much slower than the U.S., relative to the enormous difference in size of the two economies. This can be for two reasons. First, countries are not fully isolated from each other, so the benefits of scale leak across borders. Put simply, Danish firms can have access to the U.S. market (and beyond) via trade. This immediately generates a potential connection between trade policy and growth, operating via scale effects. A second reason, on the flip-side, is that countries are not fully integrated domestically, i.e. there are internal barriers to trade that prevent countries from benefiting from their size. A paper by Ramondo et al. (2016) investigates the two possibilities, calibrating a model where countries are divided into regions, and find that the second point is a lot more important in explaining why the Denmarks of the world aren’t a lot poorer than the Indias and Chinas and U.S.

经济代写|宏观经济学代写Macroeconomics代考|Scale effects

：b>0. 这意味着想法的回报会递减，因为您需要更多的人来产生相同的创新速度。在这样的世界中，研究可能会带来恒定的创新速度（例如关于计算机处理能力发展的所谓摩尔定律），但这仅仅是因为投入了更多的资源。该模型导致没有规模效应的增长，Jones (1995) 将其称为半内生增长。

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