• Report

Economic Impact of the Advanced Technology Program’s HDTV Joint Venture

Citation

White, W., & O'Connor, A. (2003). Economic Impact of the Advanced Technology Program’s HDTV Joint Venture. Unknown Publisher.

Abstract

Technological progress is the key to offering future populations the potential for improved standards of living. Technical change enables firms to combine inputs in a novel manner to produce existing products more cheaply and to develop new products to meet consumer needs. Economists and other social scientists are in broad agreement that technological change is the most important contributor to economic growth in the modern era. Based on Robert Solow’s and Moses Abramovitz’s path-breaking work more than 40 years ago, economists have estimated that more than half of our country’s long-run growth is attributable to technological change (Solow, 1957; Abramovitz, 1956). Whenever an individual or a firm makes a technological advancement that improves the performance or quality of a product or reduces the cost of making it, the overall level of social welfare in the economy is increased. Likewise, when a new product or service is developed, welfare is increased as long as some consumers are willing to pay more than the costs of producing it. Established principles of welfare economics argue that the private level of investment in such innovations will be optimal in the absence of market failures or externalities; that is, if the innovator is able to fully appropriate benefits generated by the improvement. In most cases, however, a portion of this welfare increase “spills over” to consumers or to other economic agents (Mansfield et al., 1977; Scherer, 1999), because the innovating firm typically cannot extract all of the surplus created. If there is sufficient rivalry among producers, for example, prices may be driven down to the point that the innovating firm cannot retain any surplus and thus is unable to recover its investments in research, development, or purchase of long-lived assets. In other cases, benefits may accrue to competitors and firms in related or unrelated fields, a phenomenon economists call “knowledge spillovers.” This investment recovery risk to innovators lies behind our nation’s patent and copyright protection systems. The promise of a limited monopoly offers firms and individuals assurance that they will be able to retain some of the surplus from their creations. If this intellectual property protection is sufficient to induce firms and individuals to pursue all socially beneficial innovations, private levels of investment will be optimal. Even if some improvements are not made because of the existence of spillovers, the losses from these marginal innovations may not be large enough to justify an extensive government role in product and process development.