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Differentiation in Adoption of Environmental Standards: LEED from 2000-2010 (with Marc Rysman and Yanfei Wang)

Understanding how firms adopt voluntary quality or environmental standards is important for designing such programs and evaluating their success. We study the adoption of LEED (Leadership in Energy & Environmental Design), an internationally recognized environmental building certification system. LEED offers four levels of certification, corresponding to greater investments in green building technology. We find substantial heterogeneity in the choice of certification levels, even within relatively small markets. In order to explain this heterogeneity, we specify a model that encompasses market and building factors, as well as differentiation - choosing LEED levels that distinguish a building from its rivals. We estimate this model via indirect inference, and find that differentiation accounts for 34.1% of the variation due to observable variables. It is more important than observed project characteristics, almost as important as observed market characteristics, and 16.07% as important as unobserved market effects. We also use the model to evaluate a counterfactual LEED standard that provides only two certification levels, reducing opportunities for differentiation. Our model predicts that certification levels would increase under the counterfactual standard, though this does not necessarily improve environmental performance.

Final Report of the Berkeley Center for Law & Technology Patent Damages Workshop (with Stuart Graham, Peter Menell and Carl Shapior)

The determination of patent damages lies at the heart of patent law and policy, yet it remains one of the most contentious topics in this field, particularly as regards the calculation of a reasonable royalty. In March 2016, the authors convened a workshop of leading “insiders” (in-house counsel, litigators (from both the assertion and defense sides), patent licensing professionals, and testifying expert witnesses) and academics (both law professors and economists) to clarify areas of consensus and disagreement regarding the treatment of patent damages. This report summarizes the discussion, key findings, and ramifications for patent case management.

Forking, Fragmentation and Splintering (with Jeremy Watson)

Although economic theory suggests that markets may tip towards a dominant platform or standard, there are many prominent examples of persistent incompatibility, inter-platform competition and standards proliferation. This paper examines the economics of forking, fragmentation and splintering in markets with network effects. We illustrate several causes of mis-coordination, as well as the tools that firms and industries use to fight it, through short cases of standardization in railroad gauges, modems, operating systems, instant messaging and Internet browsers. We conclude by discussing welfare effects of efforts to promote inter-operability.

How Do Tax Credits Affect R&D Expenditures by Small Firms? Evidence from Canada (with Ajay Agrawal and Carlos Rosell)

We exploit a change in eligibility rules for the Canadian Scientific Research and Experimental Development (SRED) tax credit to gain insight on how tax credits impact small-firm R&D expenditures. After a 2004 program change, privately owned firms that became eligible for a 35 percent tax credit (up from a 20 percent rate) on a greater amount of qualifying R&D expenditures increased their R&D spending by an average of 15 percent. Using policy-induced variation in tax rates and R&D tax credits, we estimate the after-tax cost elasticity of R&D to be roughly -1.5. We also show that the response to changes in the after-tax cost of R&D is larger for contract R&D expenditures than for the R&D wage bill and is larger for firms that (a) perform contract R&D services or (b) recently made R&D-related capital investments. We interpret this heterogeneity as evidence that small firms face fixed adjustment costs that lower their responsiveness to a change in the after-tax cost of R&D.

 

Older Projects

Disease Management: Helping Patients (Who Don’t) Help Themselves (with Paul Gertler)

Chronically ill patients currently consume a significant share of the U.S. health system's resources and are a rapidly growing segment of the overall population. Disease Management (DM) programs identify high-risk patients among the chronically ill, encourage them to take better care of themselves, and help coordinate the care they receive from various providers. This paper examines the impact of a diabetes Disease Management program. We find that it led to increased compliance with clinical practice guidelines, improvements in patient health, and significant reductions in the total cost of care. The financial benefits are greater for patients lacking “self control” prior to enrolment, as indicated by their failure to comply with generally accepted clinical practice guidelines. These results are especially important for the Medicare program, which has the majority of the chronically ill as beneficiaries.

 

Alternative Versions and Other Writing

Can standard setting organizations address patent hold­up? Comments for the Federal Trade Commission

This essay describes the problem of patent hold-up that can arise when firms own patents that are essential to an industry stadnard and fail to negotiate an ex ante license with implementers. I discusses a number of steps that standards setting organizations and government regulators might take to alleviate this problem.

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