Alvin K. Klevorick

Appropriating the Returns from Industrial Research and Development

To HAVE the incentive to undertake research and development, a firm must be able to appropriate returns sufficient to make the investment worthwhile. The benefits consumers derive from an innovation, however, are increased if competitors can imitate and improve on the innovation to ensure its availability on favorable terms. Patent law seeks to resolve this tension between incentives for innovation and widespread diffusion of benefits. A patent confers, in theory, perfect appropriability (monopoly of the invention) for a limited time in return for a public

On the sources and significance of interindustry differences in technological opportunities

The set of technological opportunities in a given industry is one of the fundamental determinants of technical advance in that line of business. We examine the concept of technological opportunity and discuss three categories of sources of those opportunities: advances in scientific understanding and technique, technological advances originating in other industries and in other private and governmental institutions, and feedbacks from an industrys own technological advances. Data from the Yale Survey on Industrial Research and Development are used to measure the strength of various sources of technological opportunity and to discern interindustry differences in the importance of these sources. We find that interindustry differences in the strength and sources of technological opportunities contribute importantly to explanations of cross-industry variation in R&D intensity and technological advance.

The "Optimal" Fair Rate of Return

A rather extensive literature has developed that analyzes the behavior of the profit-maximizing regulated firm using the model introduced by H. Averch and L.L. Johnson (A-J). Taking the value of the fair rate of return as exogenously given, this set of papers has provided a rather complete and detailed analysis of the (absolute and relative) input levels chosen by such a regulated firm and the quantity of output produced by the company.

The behavior of a firm subject to stochastic regulatory review

In recent years, the behavior of regulated public utilities has received increasing attention from economic theorists. The principal structure used in analyzing this behavior has been the Averch-Johnson model of the regulated firm. The current paper presents an alternative view of the regulated firm, one which attempts to narrow some (though by no means all) of the gaps between the now standard model and the actual regulatory process. In particular, the new model proposed here considers the firms operations in a dynamic context -- with the firm looking to the future in making todays decisions -- and it incorporates the interplay between the regulatory agency and the firm. The model captures the price-setting role of the regulators, and it encompasses the phenomenon of regulatory lag. The uncertainty associated with the occurrence of rate reviews is modeled by positing that reviews occur stochastically through time. And, although the treatment of the issue is rather simplistic, the model does incorporate technical change generated by the regulated firms program of research and development. The regulated firms optimal policy is characterized, and the implications this optimal policy has for two traditional issues in regulatory economics -- the input efficiency of regulated firms and the effect of regulatory lag on research and development -- are examined.

Judging quality by price, snob appeal, and the new consumer theory

ConclusionThe analysis contained in this paper has served two purposes. First, it has demonstrated the richness of “the new consumer theory” by showing how this new approach can incorporate the questions of judging quality by price and price-snob appeal. And second, the paper has derived analytically the conditions under which these phenomena will yield a positively sloping demand curve in a two-commodity, two-attribute world.In traditional theory the consumers response to a change in the price of a good is conceptually divided into an income effect and a substitution effect. The new approach to consumer theory partitions the consumers response differently, namely, into an efficiency substitution and a utility substitution. When a general price attribute is introduced each of these divisions retains its individual validity. The conclusion that the efficiency substitution is always non-positive also remains valid. But, the traditional substitution effect may now be positive and of sufficient magnitude to make theentire response to an own-price changepositive,∂xi/∂pi>0. We have shown analytically, then, as the verbal discussions of traditional consumer theory lead us to believe, that judgment of quality by price and price-snob appeal can result in positively sloped demand curves.

The Behavior of a Firm Subject to Stochastic Regulatory Review: Correction

In the following note the author supplies corrections for Lemmas 1 and 2 which appeared in his earlier article in this Journal. The revised Lemmas can be used to correct his original proof of Theorem 2.

Jury Size and Composition: An Economic Approach

The facilities and processes that governments provide for resolving legal disputes constitute an important public service. For the resolution of some of these disputes, society turns to a body of laymen—a jury. In considering the fury as a conflict-resolving instrument, several interrelated questions arise concerning the jury’s size, the way its members are selected, and the voting rule that it uses in reaching its decision. This paper presents a theoretical structure to help address these questions. The model, which uses a statistical decision-theoretic framework, is then used to examine the specific issue of how ‘representative’ a jury should be.

The Plausibility of Twombly: Proving Horizontal Agreements after Twombly

One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this landmark volume offer a rigorous analysis of the field’s most current and contentious issues.