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.
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.
We investigate whether government green procurement policies stimulate private-sector demand for similar products and the supply of complementary inputs. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the US Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and supplier investments in green building expertise. Our findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopters.
Shared technology platforms are often governed by standard setting organizations (SSOs), where interested parties use a consensus process to address problems of technical coordination and platform provision. Economists have modeled SSOs as certification agents, bargaining forums, collective licensing arrangements and R&D consortia. This paper integrates these diverse perspectives by adapting Elinor Ostrom’s framework for analyzing collective self-governance of shared natural resources to the problem of managing shared technology platforms. There is an inherent symmetry between the natural resource commons problem (over-consumption) and the technology platform anti-commons problem (over-exclusion), leading to clear parallels in institutional design. Ostrom’s eight principles for governing common pool resources illuminate several common SSO practices, and provide useful guidance for resolving ongoing debates over SSO intellectual property rules and procedures.
This chapter offers an empirical case study of the Internet architecture from an economic viewpoint. Data collected from the two main Internet standard setting organizations (IETF and W3C) demonstrate the modularity of the Internet architecture, and the specialized division of labor that produces it. An analysis of citations to Internet standards provides evidence on the diffusion and commercial applications of new protocols. I tie these observations together by arguing that modularity helps the Internet (and perhaps digital technology more broadly) avoid long-run decreasing returns to investments in innovation, by facilitating low-cost adaptation of a shared general-purpose technology to the demands of heterogeneous applications.
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.
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.