Anne Layne-Farrar

Human Capital Pricing Equations with an Application to Estimating the Effect of Schooling Quality on Earnings

This paper formulates and estimates alternative models for the pricing of labor services. We present economic models that rationalize empirical specifications in the literature and we offer evidence on the validity of those specifications. Widely used efficiency units models of labor services are inconsistent with evidence from the U.S. labor market. A model of heterogeneous skills provides a more accurate description of earnings data. We present evidence that the pursuit of comparative advantage and selective migration are important features of the U.S. labor market. When these features are included in the model, the only support for an effect of schooling quality on earnings is through the return to college education. Three interactions are empirically important in explaining log wage equations: (A) between schooling quality and education, (B) between regional labor market shocks and education and (C) between region-of-residence and regionof-birth. Because of this third interaction, which can arise from comparative advantage in the labor market, no unique quality effect on returns to education can be defined independently of the market in which it is used.

The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics

Ever since the first general-purpose charge card debuted in the early 1950s, pundits have been predicting the cashless society. Over fifty years later, we may finally be getting close to that vision. This study is the first to examine empirically the move toward a cashless society using a cost-benefit framework. We find that when all key parties to a transaction are considered and benefits are added, cash and checks are more costly than many earlier studies suggest. In general, the shift toward a cashless society appears to be a beneficial one.

The Move Toward a Cashless Society: Calculating the Costs and Benefits

While the cashless society has not yet fully become a reality, payment choices by consumers and merchants have been moving the U.S. economy in that direction slowly and steadily over the past five decades. In this study, a companion paper to Garcia-Swartz (2006a) in this volume, we lay out the detailed cost and benefit calculations behind our analysis of the steady changes in transaction payment methods.

REVISITING INJUNCTIVE RELIEF: INTERPRETING eBAY IN HIGH-TECH INDUSTRIES WITH NON-PRACTICING PATENT HOLDERS

The Supreme Courts 2006 eBay ruling marked a turning point in injunctive relief policy. Unfortunately, there seems to be considerable confusion about the implications of the decision. Some authors, concerned over patent holdup and excessive royalty rates, interpret the eBay decision as giving a green light to district courts to deny injunctive relief to “non-manufacturing patent owners.” Using an error–cost framework, we examine the theory and evidence behind patent holdup concerns as they relate to injunctive relief policy. We find that the holdup theory justifying categorical limitations on injunctive relief rests upon overly narrow assumptions. As a result, categorical limitations are likely to result in substantial “false positives,” where patent holders with no designs of patent holdup are nonetheless denied injunctive relief. Instead of advocating categories of denial, we argue that the majority opinion in eBay can and should be read as a return to a balancing test, where costs and benefits are weighed carefully before granting or denying a patent injunction.

Defining Software Patents: A Research Field Guide

What, exactly, distinguishes a patent on a software innovation from patents on other kinds of innovations? While the question may appear esoteric at first glance, it is the crucial first step in any empirical study of software patents. The policy debate over software patents - whether they should be allowed at all, what should qualify, and whether they are used to block or encourage innovation - has been raging for quite some time on both sides of the Atlantic. Meaningful contributions to this debate should be rooted in firm empirical analysis, as opposed to individual anecdotes. But supplying firm empirical analysis requires data on software patents, and thus the question posed above. In this paper, I examine the definitional choices made thus far by the emerging empirical literature on software patenting and explore the implications of those choices. The emphasis here is on how the definition selected can affect the conclusions made. I find that different definitions do lead to datasets with distinct characteristics. While no one definition emerges as clearly right, some methods appear better than others. Much more empirical research on software patenting is needed to improve patent reform efforts, and that research should begin by justifying the definition of software patent chosen.

The Law and Economics of Software Security

Security in software networks relies on technology, law, and economics. As the cost of software security breaches becomes more apparent, there has been greater interest in developing and implementing solutions for different parts of the problem. In this paper, we provide the first comprehensive assessment of the software security issue that uses a law and economics framework. We begin by offering a definition of software security that illustrates the complexity of the problem. We then review and critique the literature assessing the costs of software security. Finally, we evaluate a number of legal, economic and technical approaches for addressing security problems.

The Evolution of Network Industries: Lessons from the Conquest of the Online Frontier, 1979–95

In this paper we dissect the competitive dynamics of a network industry that has not been systematically studied in the past—the consumer‐oriented online networks of the pre‐1995 era. After briefly reconstructing the historical evolution of the industry we focus on a number of issues at the intersection of theory and data: the importance of direct and indirect network effects, tipping to a dominant player and the entry strategies adopted by two different waves of entrants. We also analyse price wars and the displacement of the leader in the first half of the 1990s. In the final section we focus on some remaining puzzles that suggest directions for further theoretical and empirical research.

Revisiting Injunctive Relief: Interpreting eBay in High-Tech Industries with Non-Practicing Patent Holders

The Supreme Courts 2006 eBay ruling marked a turning point in injunctive relief policy. Unfortunately, there seems to be considerable confusion about the implications of the decision. Some authors, concerned over patent holdup and excessive royalty rates, interpret the eBay decision as giving a green light to district courts to deny injunctive relief to non-manufacturing patent owners. Using an error cost framework, we examine the theory and evidence behind patent holdup concerns as they relate to injunctive relief policy. We find that the holdup theory justifying categorical limitations on injunctive relief rests upon overly narrow assumptions. As a result, categorical limitations are likely to result in substantial false positives, where patent holders with no designs of patent holdup are nonetheless denied injunctive relief. Instead of advocating categories of denial, we argue that the majority opinion in eBay can and should be read as a return to a balancing test, where costs and benefits are weighed carefully before granting or denying a patent injunction.

Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts: Incentives to Join Cooperative Standard Setting

Formal, cooperative standard setting continues to grow in importance for the global economy. And as standards become more pervasive, the stakes rise for all participants. It is not surprising then that many standards are covered by intellectual property rights, that battles over the licensing of those rights have reached a fevered pitch in several industries, and that competition agencies around the globe are seriously weighing whether and how to intervene in the standard setting process. One suggestion for such an intervention is the imposition of a licensing cap, referred to as the incremental value rule. We evaluate this proposal and find that even in contexts where this rule is efficient from an ex�?post point of view, it induces important distortions in the decisions of firms to innovate and participate in standard setting organizations (SSO). Such a rule reduces the R&D investment that a firm makes in relevant technologies and lowers the probability that it will join the SSO. We characterize a variation of the incremental value rule for defining fair, reasonable, and nondiscriminatory that accounts for both investment and participation incentives.

Further Thoughts on the Cashless Society: A Reply to Dr. Shampine

We address Allan Shampines critiques of our study on the costs and benefits of payment instruments, and review the current state of the literature. We argue that a consensus seems to be emerging in which: (a) different payment instruments appear to be socially efficient at different transaction sizes; (b) cash appears to be efficient for small payments; and (c) debit cards appear to overtake cash as the socially optimal instrument as the transaction size increases. Except for the fact that in our study credit appears to overtake debit at large transaction sizes, our 2006 findings are consistent with the consensus.