Assignment 1

ENGINEERING ECONOMICS

By :

Nishanth P 09co63

1. Economic development and its impact on science

Economic development is a broad term that generally refers to the sustained, concerted effort of policymakers and community to promote the standard of living and economic health in a specific area. Such effort can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. Economic development differs from economic growth. Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out: economic growth is one aspect of the process of economic development. Systematic study of technology change by economists and other social scientists began largely during the 1950s, emerging out of a concern with improving our quantitative knowledge of the sources of economic growth. The early work was directed at identifying the importance of different factors in generating growth and relied on highly aggregated data. However, the finding that increases in the stocks of conventional factors of production (capital and labor) accounted for only a modest share of economic growth stimulated more detailed research on the processes underlying technological progress, and led to major advances in conceptualization, data collection, and measurement. It also focused attention on theoretical research, which was clarifying why market mechanisms were not as well suited to allocate resources for the production and transmission of knowledge as they were for more traditional goods and services. The intellectual impetus that these studies provided contributed to an increased appreciation by policymakers of the economic significance of science and technology, and a more intensive investigation of its role in phenomena as diverse as: the slowdown of productivity advance in the West, the extreme variation in rates of growth across the world, and the increased costs of health care. Expenditure on research and development (R&D) is typically considered to be the best single measure of the commitment of resources to inventive activity on the improvement of technology. Accordingly, the colloquium began with a background paper by Adam Jaffe, which provided an overview of trends and patterns in R&D activity since the early 1950s, as well as some international comparisons. He discussed how federal spending on R&D is roughly the same today in real terms as it was in the late 1960s, but that expenditures by industry have nearly tripled over that period raising its share of all funding for R&D from roughly 40% to 60%. Basic research has fared relatively well and increased its share of the total funds for R&D, with universities being the primary beneficiary of the marked shift of federal spending in this direction. From an international perspective, what stands out is that the historic pattern of United States leadership in R&D expenditures as a share of gross domestic product has been eroding in recent years; and that the United States devotes a much higher proportions of its R&D expenditures to defense and to life sciences than do counterparts like Germany, Japan, France, and the United Kingdom. If the returns to academic science are to be estimated, we need good measures of the principal outputsnew ideas and new scientists. Although economists have worked extensively on methods to value the latter, much less effort has been devoted to developing useable measures of the former.

Adam Jaffe and Manuel Trajtenberg reported on their development of a methodology for the use of patent citations to investigate the diffusion of technological information over geographic space and time. In illustrating the opportunities for linking inventions and inventors that the computerization of patent citation data provide, they found: substantial localization in citations, lower rates of citation for federal patents than for corporate, a higher fertility or value of university patents, and citation patterns across technological fields that conform to prior beliefs about the pace of innovation and the significance of gestation lags. Scholars and policymakers often ask about the significance and effects of trade in intellectual capital. Naomi Lamoreaux and Kenneth Sokoloff offered some historical perspective on this issue, presenting research on the evolution of trade in patented technologies over the late nineteenth and early twentieth centuries. Employing samples of both patents and assignments (contracts transferring rights to patents), they found evidence that a class of individuals specialized in inventive activity emerged long before the rise of industrial research laboratories. This rise of specialized inventors was related to the increasing opportunities for extracting the returns to discoveries by selling or licensing off the rights, as opposed to having to exploit them directly. They also found that intermediaries and markets, supportive of such trade in technological information by reducing transaction costs, appear to have evolved first in geographic areas with a record of high rates of patenting, and that the existence of these and like institutions may in turn have contributed to the persistence over time of geographic pockets of high rates of inventive activity through selfreinforcing processes. The paper by Keith Pavitt was perhaps more explicitly focused on the design of technology policy than any other presented at the colloquium. Making reference both to the weak association across nations between investment in R&D and economic performance, and to the paucity of evidence for a direct technological benefit to the information provided by basic research, he argued that the major value of such activity is not in the provision of codified information, but in the enhancement of capacity to solve technological problems. This capacity involves tacit research skills, techniques and instrumentation, and membership in national and international research networks. In his view, the exaggerated emphasis on the significance of codified information has encouraged misunderstanding about the importance of the international free-rider problem and a lack of appreciation for institutional and labor policies that would promote the demand for skills and institutional arrangements to solve complex technological problems. One afternoon of the colloquium was devoted to papers on economic issues in medical technology. The paper by Mark McClellan presented new evidence on the marginal effects of intensive medical practices on outcomes and expenditures over time, using data on the treatment of acute myocardial infarction in the elderly from 1984 through 1991 from a number of hospitals. In general, McClellan found little evidence that the marginal returns to technological change in heart attack treatment (catheterization is the focus here) have declined substantially; indeed, on the surface, the data suggest better outcomes and zero net expenditure effects. Because a substantial fraction of the long-term improvement in mortality at catheterization hospitals is evident within 1 day of acute myocardial infarction, however, McClellan suggests that procedures other than catheterization, but whose adoption at hospitals was related to that of catheterization, may have accounted for some of the better outcomes.

Lynn Zucker and Michael Darby followed with a discussion of their studies of the processes by which scientific knowledge comes to be commercially exploited, and of the importance of academic researchers to the development of the biotechnology industry. Employing a massive new data set matching detailed information about the performance of firms with the research productivity of scientists (as measured by publications and citations), they found a very strong association between the success of firms and the extent of direct collaboration between firm scientists and highly productive academic scientists. The evidence is consistent with the view that star bioscientists were highly protective of their techniques, ideas, and discoveries in the early years of the revolution in genetic sequencing, and of the significance of bench-level working ties for the transmission on technological information in this field. Zucker and Darby also suggest that the research productivity of the academic scientists may have been raised by their relationships with the firms because of both the opportunities for commercialization and the additional resources made available for research. The paper by Alan Garber and Paul Romer begins by reviewing the arguments that lead economists and policy makers to worry that market allocation mechanisms, if left alone, may not allocate an optimal amount of funds to research activity. They then consider the likely costs and benefits of various ways of changing the institutional structures that determine the returns to research, including strengthening property rights for innovative output and tax subsidy schemes. The discussion, which is weighted to medical research, points out alternative ways of implementing these schemes and considers how their relative efficacies are likely to differ with the research environment. Iain Cockburn and Rebecca Henderson followed with an empirical investigation of the interaction between publicly and privately funded research in pharmaceuticals. Using a confidential data set that they gathered, they begin by showing that for their sample of 15 important new drugs there was a long and variable lag between the date of the key enabling scientific discovery and the market introduction of the resultant new chemical entity (between 11 and 67 years). In at least 11 of the 14 cases the basic discoveries were done by public institutions, but in 12 of those same cases the major compound was synthesized at a private firm, suggesting a downstream relationship between the two types of research institutions. They stress, however, that private sector research scientists often publish their results and frequently co-author with scientists from public sector institutions, suggesting that there are important two-way flows of information. There is also some tentative evidence that the research departments of firms that have stronger ties to the public research institutes are more productive. Steve Berry, Sam Kortum, and Ariel Pakes analyze the impact of the lowering of emission standards and the increase in gas prices on the characteristics and the costs of producing automobiles in the 1970s. Using their construct of a hedonic cost function, a function that relates the costs of producing automobiles to its characteristics, they find that the catalytic converter technology that was introduced after the lowering of emissions standards in 1975, did not increase the costs of producing an auto (though it may have hurt unmeasured performance characteristics). However, the more sophisticated three-way and closed-loop catalysts and the fuel injection technologies, introduced following the further lowering of emissions standards in 1980, increased costs significantly. They also show that the miles per gallon rating of the new car fleet increased significantly over this period, with the increases occurring primarily as a result of the introduction of

new car models. Though the new models tended to be smaller than the old, there was also an increase in the miles per gallon in given horsepower weight classes. This, together with striking increases in patenting in patent classes that deal with combustion engines following the 1973 and 1979 gas price hikes, suggests a significant technological response, which allowed us to produce more fuel efficient cars at little extra cost. In his presentation, Richard Zeckhauser suggested that economists and analysts of technology policy often overestimate the degree to which technological information is truly a public good, and that this misunderstanding has led them to devote inadequate attention to the challenges of contracting for such information. Economists have long noted the problems in contracting, or agency, that arise from the costs of verifying states of the world, or from the fact that potential outcomes are so numerous that it is not possible to prespecify contingent payments. All of these problems are relevant in contracting for technological information, and constitute impediments to the effectiveness of invention and technological diffusion. Zeckhauser discusses how government, in its role as enforcer and definer of property rights in intellectual capital as well as in its tax, trade, and antitrust policies, has a major impact on the magnitude of contracting difficulties and the way in which they are resolved. United States policies toward intellectual capital were developed for an era of predominantly physical products, and it is perhaps time for them to be reexamined and refashioned to meet current technological realities. As long as authorities have acted to stimulate invention by granting property rights to intellectual capital they have been plagued by the questions of when exploitation of such property rights comes to constitute abuse of monopoly power or an antitrust violation, and what should their policies be about such cases. The final paper presented at the colloquium offered an economic analysis of a contemporary policy problem emanating from this general issuewhether or not to require holders of intellectual property to offer licenses. As Richard Gilbert and Carl Shapiro make clear, the effects of compulsory licensing on economic efficiency are ambiguousfor any kind of capital. They show that an obligation to offer licenses does not necessarily increase economic welfare even in the short run. Moreover, as is well recognized, obligations to deal can have profound adverse consequences for investment and for the creation of intellectual property in the long run. Equal access (compulsory licensing in the case of intellectual property) is an efficient remedy only if the benefits of equal access outweigh the regulatory costs and the long run disincentives for investment and innovation. This is a high threshold, particularly in the case of intellectual property.

2. Engineering technology and society

The following definition of engineering technology was established by the Technology Accreditation Commission of ABET, Inc., and was approved by the Engineering Technology Council of the American Society for Engineering Education. Engineering technology is the profession in which a knowledge of mathematics and natural sciences gained by higher education, experience, and practice is devoted primarily to the implementation and extension of existing technology for the benefit of humanity. Engineering technology education focuses primarily on the applied aspects of science and engineering aimed at preparing graduates for practice in that portion of the technological

spectrum closest to product improvement, manufacturing, construction, and engineering operational functions. Thus engineering technology is the application of engineering principles and modern technology to help solve or prevent technical problems. Engineering technicians play a vital role in our society. Typically, a technician works closely with engineers and occasionally with scientists. To better understand the technicians role in our world, well compare it to the roles of the scientist and engineer. A scientist is focused on the search for knowledge. A scientist strives to understand the how and why of something. An engineer is focused on designing or developing something. An engineer strives to turn ideas into reality. An engineering technician is focused on carrying out, analyzing, modifying, and improving the products or processes proposed by engineers. In many workplaces, engineers and engineering technicians work closely together to develop and implement ideas related to a product or process. Engineering and Technician can be defined as follows: 1. EngineeringThe application of science and mathematic principles to practical purposes such as the design, construction, and operation of efficient and economical structures, equipment, or systems 2. TechnicianAn expert in a technical field or process

Throughout history, technological advances have created a need for further advances. As each technological advance was born, scientists and engineers took advantage of it and created new and better technologies. Since long ago, people have relied on new inventions and discoveries to make life more manageable. When an enterprising cave dweller discovered how to create fire, it became easier for the clan to travel because they were no longer tied to a lightning-created fire, which they used for cooking, warmth, and protection from wild beasts. Cave dwellers reasoned that the bow and stick, which they knew made wood hot when used for drilling holes, would ignite dry material and create fire. The ability to perceive a new way to reach a desired goal is the heart of all engineering. Since the ability to make fire developed, early inventors and their modern-day engineering descendants have imagined and created a world full of amazing inventions. Their

influence on the society has been there from the early age of man, from fire starters to jet engine designers. Ancient Engineering Technicians As civilizations progressed, their needs became more complex. In ancient Egypt and Iraq, for example, agricultural and other needs required the movement of water over long distances. In these civilizations, engineers built irrigation canals that carried water up to 200 miles. The engineers who built these great canals had to understand many physical principles. They also had to be flexible enough to find solutions to operational problems as they occurred. One such problem was erosion. When erosion occurred, the dirt and mud banks of the irrigation canals broke apart and fell into the water. These ancient civil engineers solved the problem when they discovered that if they lined the canal walls with mats woven from common plants called cane reeds, they could prevent the soil from eroding. Today, modern civil engineers apply themselves to similar problems. Todays civil engineers are concerned with planning, designing, and building structures for industry, transportation, and the use and control of water. Iron Age and the Development of Steel Iron wasnt the first metal people used, but its use as played a large part in the engineering innovations of the modern world. The first major production and use of iron occurred about 1500 B.C. in what is now Turkey. To make iron, iron ore was heated in large furnaces called smelting furnaces, then carbon was added. The carbon came from charcoal, which is made from charred wood. The amount of carbon added to the iron ore determined the strength and quality of the iron. This iron-making process was mostly unchanged for over 3,000 years. In a relatively short time howeverno more than 100 years major refinements were eventually made in this process.After the production of iron came steel. Steel is a combination of iron and very small, exact amounts of carbon. Over time, the demand for steel products increased and so did the use of charcoal. In fact, so much wood was used for charcoal that the hardwood forests of Western Europe began to disappear. The loss of trees in England eventually reached such high levels that the British didnt have enough hardwood to build ships for their navy. But necessity proved to be the mother of invention, and in the early 1800s, a British inventor named Abraham Darby developed a process for making steel that no longer required the use of charcoal. This process was called coal coking. In coal coking, specific types of coal are burned to form coke and carbon. The coal was mined near iron ore deposits, which created a new efficiency that allowed the blast furnaces of England to produce an abundance of steel. A short time later, people found that steel produced in a blast furnace wasnt a suitable metal for the precision machine parts that needed to be manufactured. As a result, a new technology, iron metallurgy, was born. Iron metallurgy came about because engineers observed the structure of fractured samples of iron, and saw that too much carbon was present to make a good steel. These early chemical engineers further refined the steel production process by blowing oxygen onto molten iron, causing the carbon to burn more completely. Over the years, the steel production process has been further refined into todays modern method, shown in Figure 3. Today, modern chemical engineers are concerned with similar problems. These engineers develop materials that can be used in a variety of products and deal with the design and operation of the equipment

that performs such work. As you read on, youll notice that engineering advancements are most often practical and imaginative responses to peoples needs. Steam Power and the Launch of the Transportation Age Innovation and invention can clearly be distinguished by their definition as : 1. InnovationA new idea, method, or device 2. InventionA device or process that originates after study and experimentation Coal mining and other activities of the 1700s led to new innovations. One innovation was a steam engine. The inventor of this steam engine was a British engineer named Thomas Newcomen. He advanced existing steam power technology by developing a machine that removed water from deep within a mine shaft. This engine created steam by heating water stored in a boiler. The water was heated using a coal fired furnace. A steam valve controlled the flow of steam into a cylinder where the steam forced a piston upward. The piston was connected to the pumps operating shaft via a lever known as a walking beam. The walking beam operated like a seesaw. Valve F allowed cold water to flow from the water tank into the cylinder. Valve J let water leave the cylinder. In order to function, valves F and J were initially closed while the steam valve was open. The closed valves prevented fluid and steam from passing through. When the piston was pulled up in the cylinder by the seesawing action of the walking beam, the cylinder itself filled with steam. The steam valve then closed, and the F valve opened to let the cold water from the tank cool the steam held in the cylinder. Since cooling gas shrinks, the piston was sucked downward by the cooling steam. The pump rod then seesawed upward, operating the pump, and drawing water from the mine shaft. In the late 1700s, other mechanical engineers perfected the steam engines operation by adjusting the amount of steam that entered the piston. They also timed the introduction of steam, or injection, to the most effective moment. The newer engines ran more smoothly and used less steam and fuel than Newcomens engine. Soon after the development of these new engines, steam-powered locomotives were developed. They were capable of pulling large loads for long distances. The steam powered locomotive also provided a fast mode of transportation. The steam-powered locomotive made it possible for cities to develop far away from existing sea ports and river ports. Today, mechanical engineers, who deal with how to make and use tools, machines, and their resulting products, perform similar tasks. In both ancient and modern times, engineering advances have changed the way people lived. These advances have also created a demand for new inventions and technologies. Technology has driven itself to new heights over time. As new uses for steel were found, the demand for steel increased. This caused improvements to be made in the production of steel. Since the production of steel required coal, the demand for coal also increased. This demand resulted in the development of a steam engine to increase yields from coal mines. These steam engines demanded not only better steel, but better manufacturing methods and machinery. For example, a steam engines pistons must fit closely in the cylinders that house them. This demands carefully constructed, precision parts. Most metalwork in the time of the steam engine was done by hand, and was therefore inaccurate. So, to address the needs of steam engine manufacturers, early versions of modern machine-making tools such as lathes and milling machines were developed and refined.

Electricity No matter what branch of engineering technology you decide to follow, the principles of electricity will be part of your education. The ancient Greeks recognized electricity on a basic level. They recognized the existence of static electricity. Static electricity, the transfer of a static charge from one object to another, is the type of electricity you experience after you drag your feet across a carpet and touch an object. Much of what early engineers thought about electricity was incomplete and sometimes incorrect. It wasnt until the late 1700s that engineers began expanding on key observations made by earlier engineers. For example, building on Ben Franklins electrical experiments, an Italian physicist named Alessandro Volta developed a battery capable of supplying a continuous flow of electricity. Figure 6 shows the device that Volta developed. Its known as the voltaic pile. It used platesof silver and zinc separated by sponges soaked in salt water to generate electricity. This invention was eventually used in a wide range of manufacturing and research processes. The voltaic pile led to the development of our modern-day battery. It took thousands of years for Franklin, Volta, and others to come along and successfully expand on the early understanding the Greeks had of electricity. In contrast, it took only about 80 years for engineers and scientists to develop electric generators, motors, light bulbs, and heaters. They were also able to establish a demand for electric power in most of the world. By the 1890s, homes were supplied with electricity, and the industry of consumer electricity and electric appliances was born. Early electrical engineers struggled to find more efficient methods of electrical distribution. Modern electrical engineers, who concern themselves with how to make, transmit, and use electrical energy, struggle to improve the systems that provide our world with electricity. Flight and Space In 1903, Wilbur and Orville Wright flew their first successful engine powered flight. In becoming the inventors of the airplane, they paved the way for flight and the field of aerospace engineering. Like the Wright brothers, aerospace engineers today are concerned with the design and construction of aircraft. Aerospace engineers are also concerned with designing and building space vehicles and the special problems of flight in both the earths atmosphere and in space. Since 1903, the development of aircraft has quickly progressed. This has resulted in inventions and innovations that demanded extraordinary levels of creativity from engineers and technicians. The need to move military aircraft faster and higher brought about the development of the jet engine. The jet engine led to the development of the large commercial airliner. While developing jet engines, engineers invented an assortment of strong, temperature-resistant metals that were much lighter than steel. The need for these space-age materials has fueled the development of new plastics and ceramics. Space explorations need for control and accuracy accelerated the development of supercomputers and simulators. Supercomputer technology led to the development of the personal computer (PC). The space shuttle is a great example of what results when many technological developments are combined.

Technologys Impact on the World

Every part of our life today has been influenced by an engineers or scientists advancement of technology. As our look at some of the history of engineering showed, new technological innovations and inventions led to more technological advances. Our world today is full of items that couldnt have been developed without the technological advances made by our early civil, chemical, mechanical, electrical, and aerospace engineers. As time has progressed, the speed at which engineering advancements have been made has increased considerably. For example, it took nearly 90 years after the invention of the simple voltaic pile until electricity became available to many urban American homes. However, it took only an additional 30 years before electronic devices were commercially available. The last 100 years has seen an explosion of technological improvements that have brought many changes to our society. Space shuttles, incredible civil engineering feats such as theGolden Gate bridge, transportation improvements from automobiles to bullet trains (Figure 9), and medical miracles like artificial hearts were made possible through the imaginative and devoted work of engineers. The need for more technological advances has created a need for more scientists, engineers, and technicians.

The Technician Today

As we discussed in the introduction, an engineering technician carries out, analyzes, modifies, and improves the products or processes proposed by engineers. Engineering technicians are the key to product development and manufacturing processes. They create computer models of a conceptual design, and build one-of-a-kind models (known as prototypes) to a designers specifications. In search of improvements, they monitor the effectiveness and accurateness of operations and manufacturing systems. They also modify existing products or processes. Engineering technicians test ideas, prototypes, and finished products for compliance with the intent of the design, and for usefulness. In all of these tasks, the abilities to reason carefully, organize and record information, advance and expand upon the ideas of others, and communicate are irreplaceable. The rapid growth of technology requires technicians to be able to adapt to change. Technicians are in demand because theyre viewed as being able to analyze todays problems, develop tomorrows solutions, and fix yesterdays errors.

References
Jaffe A(1996) Proc Natl Acad Sci USA 93:1265812663. Abstract Adams J, Griliches Z(1996) Proc Natl Acad Sci USA 93:1266412670. Abstract Jaffe A, Trajtenberg M(1996) Proc Natl Acad Sci USA 93:1267112677. Abstract Cohen L, Noll R(1996) Proc Natl Acad Sci USA 93:1267812685. Abstract www.wikipedia.com www.coe.neu.edu/Depts.htm