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Science, Tech and Public Policy


9/16 Wednesday
Put STPP on header of email
Mancur Olson Acting to advance collective interests is hard
o Collective interests are (often) public goods
Individuals cannot be denied access to good
Use by one does not affect availability to others
Example: Lighthouse used for navigation, Radio stations
o Public goods are (typically) underprovided
Rational individuals minimize private costs of providing
collective goods
Rational individuals free ride on the contributions of
o How do groups manage to achieve collective action?
Selective incentives to encourage actions in the group
Moral suasion and/or punishments may discourage free
Compensatory side payments to buy off opposition
o Implications
Small groups with concentrated interests outperform
large groups with diffuse collective interests. Effect
amplified by time, uncertainty
o Sources of Political Failure: Olson Dilemmas of Collective
Public benefits from organizing / private costs of
organizing / free riding

Overrepresentation of concentrated interests

Under-representation of diffuse interests
o MIT Examples
Essay Pool Group Prep
Dumb Questions in Class
Grad Student Council
DormCon Participant
George Stigler use of regulations to secure advantage
o Direct monetary subsidies
o Price fixing
o Controls over entry by new rivals
o Constraints on substitutes or subsidies on complements of
goods produced
Businesses often benefits from regulations
Note: If Olson is right, will large or small firms have advantages in
capturing process?
Sources: Bargaining and Influence Costs
Paul Milgrom and John Roberts bargaining and influence costs
o How do parties exert influence over outcomes in centralized
institutions such as firms, universities or governments?
o What are examples of bargaining and influence costs?
o How can designers of institutions limit undue influence?
o What are costs of such protective measures?
Costs of bargaining, rent seeking and influence as alternative to
market (Lobbies, campaign, contributions, information distortions)

o Plus cost of setting up organizations to insulate them from

rent seeking (Rigidity, exclusivity, red tape)
Political processes operate from influence
Organizational Processes & Bureaucratic Politics
Graham Allison, Herbert Simon, March
o Organizational processes standard operating procedures are
essential for large organizations to function at all but SOPs
will not fit nonstandard situations.
Graham Allison, James Q Wilson, Aaron Wildavsky
o Bureaucratic politics organizations seek autonomy, wealth,
and power political outcomes and information flows will
often refelect struggle among bureaucratics
Intellectual Property Rights
1. Tradeoffs
Difference between physical and intellectual property
o Knowledge can be used by many
Cost of diffusion is a lot more in the world of IR than PP
Example: Bells invention of the telephone (rewarded with the
patent that secured monopoly)
o Stole the idea to make the telephone from Elisha Grays
patent caveat
Intellectual Commons vs Intellectual Property
o Commons Inventions should be treated as public goods,
freely available to all and diffusing to all
o Property Inventions should be treated as legally sanctioned
monopolies, shared at owners discretion
Libertarian Inventions can be protected without state monopoly
o Rodrick Long, Jacob Loshin
o Individuals themselves can take action to limit the use
Scrambling, copy protection, voluntary boycotts

Doesnt work as effective and as often as it should

Worst of both
o Anti-commons conflicting and ambiguous property right
claims offer worst of both worlds
Results investments deterred, invention impeded,
diffusion of benefits slowed
2. Who conducts R&D? How do firms protect IPR?
Consider sectors with one, ten, one hundred and a thousand
o Highest R&D investments would be around 10 firms
Why would a monopoly conduct R&D?
o To compete outside of initial area
o To create new product
o To deter entry by others
Who does revolutionary?
o All but revolutionary work tends to be done by outsiders
without a commitment to every technologies
Who does development?
o Large firms that can recapture costs through application of
inventions on a large scale Or acquire small firms that are
doing novel work of value
9/21 Monday (Competition Policy and Antitrust)
David Hart Schools of thought, important piece for setting up
(Viscusi is one of their schools of thought)
Economics of Regulation and Antitrust Chapters 3-4, Chapter 9 (332343)
EU Commission (Skim)
USDOJ, Antitrust Litigation During (Important)

Pearlstein Why Justice blocked AA-US merger
Chris Isidore USAir and AA Reach Deal with Justice
Emily Steel Under Reg Scrutiny..
IT Practices
Robert McMillian
James Kanter
Sam Schechner Google Rebuffs EU on Antitrust Charges
Strategic Trade
Marc L. Busch Trade Warriors (Chapter 1 and 3)
James Politi
Jeffrey Ball, Solar Panel
J Shankelman, Have Anti-dumping Measures helped or hindered EU
Dumping selling the products less than the cost
Tuesday 9/15/15
Paper Topic Outline Due by Email Next Monday (9/21)
Viscusi should optimize a working economic, only when the
economy is not working efficiently, then regulation
Stigler theres actually a market for regulation, theres a market
for competition - Writing Tutor

Graham T. Allison

Problems of foreign and military policy are thought and

conceptualized into implicit models
Most analysts predict or explain the behavior of national
governments in the various forms of one model called the Rational
Policy Model (I)
o To show how the nation or government could have chosen the
action in question
Model I implicates that important events have important causes
o Large acts are the consequences of smaller (conflicting)
actions by individuals at various levels of bureaucratic
Two other models
o Organizational Process Model (Model II)
o Bureaucratic Politics Model (Model III)
Model II states that the acts and choices of Model I are actually
the outputs of large organizations functioning according to regular
patterns of behavior
Model III focuses on the internal politics within a government
Foreign policy has often been compared to moves, sequences of
moves, and games of chess
o Model I A single individual chess player
o Model II Chess player that is actually a loose alliance of
semi-independent organizations
Stigler Economic Regulation
Regulation is acquired by the industry and is designed and operated
primarily for its benefit
Two main alternative views
o Regulation is instituted for the protection and benefit of the
public (or a large subset of the public)
o Political process defies rational explanation
The state has the power of coercion which not even the mightiest
citizens have
There are four main policies that companies/industries may seek
from the government
o Direct subsidy of money

However, most companies wont because the larger

amount of beneficiaries (rivals) the smaller the amount
of money the company gets
o Control over entry by new rivals
Stiglers general hypothesis: every industry/occupation
that has enough political power to use the state will
seek to control entry
The regulatory policy will be so fashioned as to retard
the rate of growth of new firms
A variant of control over entry is through protective
Effective if there is a specialized domestic
resource needed in the industry
o Those which affect substitutes and complements
o Those that are directed to price-fixing
Limitations of political benefits
o Distribution of control of industry among its firms is changed
o Procedural safeguards required of public processes are costly
o The political process automatically admits powerful outsiders
In general, most industries will have a positive demand price for the
services of the government
Decisions on political process must be universally and
simultaneously by a large group of people (the political process
demands simultaneity of decisions)
The decision process also must involve all the community, even
the non-participants
The industry which seeks regulation must be ready to pay the
political party with two things
o Votes
o Resources
The licensing of occupations is a possible use of the political process
to improve the economic circumstances of a group
o Also an effective barrier to entry
Mancur Olson

Paradoxical behavior: If the individuals of a class have a sufficient

degree of self-interest as well as agreeing on a common interest,
then the group would act in a self-interested or group-interested
The services of organizations resemble the services of the state in
one big aspect: the services go to everyone in that group
o Each individual would only get a minute share of any services
he or she paid for
Some organizations are supported because of the collective goods
they provided, but for selective incentives (one that selectively
applies to the individuals depending on whether they do or do not
contribute to the gain of collective goods)
Those groups that have access to selective incentives will be more
likely to act collectively to obtain collective goods than those who
do not
Smaller groups will have a greater likelihood of engaging in
collective action than larger ones