provided by Research Papers in Economics
INNOVATION POLICY AND THE ECONOMY:
INTRODUCTION TO VOLUME 11
Josh Lerner
Scott Stern
This volume is the eleventh annual volume of the National Bureau of Economic Research
(NBER) Innovation Policy and the Economy (IPE) group. The appreciation of the importance of
innovation to the economy has increased over the past decade. There is an active debate
regarding the implications of rapid technological change for economic policy and the appropriate
policies and programs regarding research, innovation, and the commercialization of new
technology. This debate has only intensified as policymakers focus on new sources of
innovation and growth in light of the economic downturn and the arrival of a new administration.
The IPE group seeks to provide an accessible forum to bring the work of leading academic
researchers to an audience of policymakers and those interested in the interaction between public
policy and innovation. Our goals are:
• to provide an ongoing forum for the presentation of research on the impact of public policy
on the innovative process;
• to stimulate such research by exposing potentially interested researchers to the issues that
policymakers consider important;
• to increase the awareness of policymakers (and the public policy community more generally)
concerning contemporary research in economics and the other social sciences that usefully
informs the evaluation of current or prospective proposals relating to innovation policy.
This volume contains revised versions of the papers presented in the group’s meeting in
Washington, DC, in April 2010.
The first two chapters of this year’s volume examine innovation in two industries of particular
interest: health care and cleantech. In different ways, they explore the unique challenges that
innovation in these areas pose and the implications for public policy.
In the essay, “Where are the Health Care Entrepreneurs?,” David Cutler begins with an
inconvertible observation: that managing ever-rising health care costs is a critical challenge to
American policymakers. Rising medical costs have led to—and will continue to, unless
checked— much of the dramatic rise in federal and state budget deficits, as well as to distortions
in private sector employment. While some of these costs may be due to beneficial innovations, a
considerable body of evidence suggests that there is an enormous amount of inefficiency in the
U.S. healthcare system, totaling over $700 billion of excess spending annually.
The paper seeks to understand why this inefficiency has persisted. The problems of the medical
system—such as inadequate coordination of care and poorly designed systems—are well
understood. Why haven’t the rapid progress in cost reduction and quality control associated with