The trickle of business method patents issued by the United States Patent Office became a flood after the State Street Bank decision in 1998. Many scholars, both legal and economic, have critiqued both the quality of these patents and the decision itself. This paper discusses the likely impact of these patents on innovation. It first reviews the facts about business method and internet patents briefly and then explores what economists know about the relationship between the patent system and innovation. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting remaining areas of disagreement, and suggesting where there are major gaps in our understanding of the impact of these patents.

The trickle of business method patents issued by the United States Patent Office became a flood after the State Street Bank decision in 1998. Many scholars, both legal and economic, have critiqued both the quality of these patents and the decision itself. This paper discusses the likely impact of these patents on innovation. It first reviews the facts about business method and internet patents briefly and then explores what economists know about the relationship between the patent system and innovation. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting remaining areas of disagreement, and suggesting where there are major gaps in our understanding of the impact of these patents.

We study the production of knowledge when man), researchers or inventors are involved. in a setting where tensions can arise between individual public and private contributions. We first show that. without some kind of coordination. production of the public knowledge good (science or research software or database) is sub-optimal. Then we demonstrate that if 'lead' researchers are able to establish a norm of contribution to the public good, a better outcome can be achieved, and we show that the general public license (GPL) used in the provision of open source software is one such mechanism. Our results are then applied to the specific setting where the knowledge being produced is software or a database that will be used by academic researchers and possibly by private firms, using as an example a product familiar to economists. econometric software. We conclude by discussing some of the ways in which pricing can ameliorate the problem of providing these products to academic researchers. (c) 2006 Published by Elsevier B.V.

Evidence on the "funding gap" for R&D is surveyed. The focus is on financial market reasons for underinvestment in R&D that persist even in the absence of externality-induced underinvestment. The conclusions are that 1) small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital; 2) evidence for high costs of R&D capital for large firms is mixed, although these firms do prefer internal funds for financing these investments; 3) there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed; and 4) further study of governmental seed capital and subsidy programs using quasi-experimental methods is warranted.