Patents discourage innovation snowballing through monopoly pricing that hinders the use of prosocial innovation

//DH

First, innovation snowballing has several implications for domestic innovation policy in areas touching on climate policy. One key implication is that innovation snowballing reduces the appeal of using intellectual property (IP) to promote cleantech relative to subsidies like prizes, research grants, and research and development (R&D) tax credits. Patents and other forms of intellectual property have a main purported advantage of using markets to provide guidance on the value of innovations and main disadvantages of transaction costs and monopoly pricing, making it more difficult to use others’ innovations.18 Innovation snowballing undercuts the benefits of patents by reducing the utility of market valuation, since markets reflect an uneven playing field created by a century of untaxed greenhouse gas externalities. Additionally, because patents hinder the use of others’ innovations, they slow the snowballing process. As a result, innovation snowballing makes patents a less compelling tool for spurring cleantech innovation. We suggest a cleantech R&D tax credit as a possibly useful tool in this context.

Innovation snowballing also undercuts some long-held views about the structure of domestic innovation subsidies. For example, conventional wisdom calls for subsidizing research on basic science over R&D on products closer to commercialization because research on basic science is least likely to be provided by the private sector.19 However, a compelling reason to subsidize late-stage R&D is that its contribution to path dependence can be more easily discerned, unsettling the conventional preference for basic science. Path dependence also emphasizes the value of prioritizing increases in R&D spending over reductions in emissions in the short term, as the sooner society closes the innovation gap between cleantech and dirtytech, the sooner private-sector innovation will flow to cleantech without government support. In other words, in the short term, innovation snowballing argues for prioritizing technological development alongside (and to some extent instead of) emissions reductions to achieve a long-term goal of greater emissions reductions.