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Download Full Issue CentrePieceISSN 1362-3761 The Magazine of The Centre for Economic Performance Volume 12 Issue 2 Autumn 2007 UNIVERSITY ECONOMICS ■ Incentives for invention and technology transfer ■ The booming labour market for graduates ■ Reforming higher education in Europe ALSO IN THIS ISSUE: Mobile phones Management practices Britain’s trade unions Monetary policy-making Australia’s economy CentrePiece CentrePiece is the magazine of the CEP director, John Van Reenen Centre for Economic Performance at the CEP research director, Stephen Machin London School of Economics. Articles in this issue reflect the opinions of the authors, not Editor, Romesh Vaitilingam of the Centre. Requests for permission to Design, Raphael Whittle reproduce the articles should be sent to the Editor Print, Ghyllprint Ltd at the address below. Cover image, Ron Achin Editorial and Subscriptions Office Centre for Economic Performance © Centre for Economic Performance 2007 London School of Economics Volume 12 Issue 2 Houghton Street (ISSN 1362-3761) All rights reserved. London WC2A 2AE Annual subscriptions for one year (3 issues): Individuals £13.00 Students £8.00 Organisations (UK and Europe) £30.00 Rest of world £39.00 Visa and Mastercard accepted Cheques payable to London School of Economics Editorial What contribution do universities make Knowledge transfer has been central to the policies, such as changes in competition to innovation, productivity and long-run work of the Centre for Economic policy stimulated by Stephen Nickell’s economic growth? At the core of Performance (CEP) since its inception – work in the mid-1990s. One recent their activities are two ‘products’: though the long track record of CEP example is a study of regulation of scientific research and graduates. And influence is more evident in the world of Europe’s mobile phone industry described in as is made clear in the government- public policy. Stephen Nickell’s account here this CentrePiece. commissioned review of the UK's science of his time on the Bank of England’s and innovation system, led by Lord Sainsbury Monetary Policy Committee demonstrates Research reported in the previous issue and published in early October alongside this wider social impact of economic examines the European Commission’s the comprehensive spending review, research, in terms of the transfer of both recently concluded case against Microsoft. both of these outputs are essential for people and ideas. The court ruling that the software giant sustaining and improving the nation’s had abused its monopoly power – and the economic performance. Perhaps less well known is the Centre’s careful use of economic arguments in involvement in knowledge transfer to the support of this view – is an example of the This issue of CentrePiece explores some of private sector. Business-supported research effects that the output of universities can the central policy concerns facing institutions initiatives include the Manpower Human have on innovation, particularly in the high- of higher education and their political Resources Laboratory and a programme on tech industries that the Sainsbury review is masters. Nick Butler makes the case for new technology and productivity sponsored keen to promote. universities to have greater independence by EDS. And last year, CEP collaborated and resources. Stephen Machin and Sandra with McKinsey & Company on a second As always, your feedback on CentrePiece McNally note shortages of graduates in key survey of management practices covering is welcome. And do pass the magazine subjects, notably science, engineering and thousands of firms in Europe, Asia and the onto colleagues – whether they’re in a technology. And Mark Schankerman raises United States, the first results of which are university or making use of the core questions about the institutional framework summarised here. products of universities. for scientific endeavour and the commercialisation of new inventions CEP’s research on and with the private Romesh Vaitilingam through licensing to the private sector – sector tends to have a long-run focus Editor so-called ‘knowledge transfer’. through the generation of ideas and new [email protected] CentrePiece Autumn 2007 page 6 Higher education and the labour page 18 market Ozonomics Contents in brief... page 2 page 10 Harnessing success: incentives for invention and Europe’s universities – technology transfer in universities time for reform Mark Schankerman investigates the motivations for producing new, Nick Butler outlines what must be done to commercially valuable, scientific knowledge improve the quality of higher education in the European Union page 6 Higher education and the labour market page 18 There are no problems of graduate over-supply or over-qualification, Ozonomics according to Stephen Machin and Sandra McNally Andrew Charlton explores the myth of Australia's economic superheroes page 12 What drives good management around the world? page 20 CEP’s global survey of over 4,000 firms reveals huge variations in the Union blues quality of management practices Alex Bryson and Paul Willman chart the continuing decline of Britain’s trade unions page 22 Life on the Monetary Policy Committee Stephen Nickell reflects on his experiences setting the nation’s official interest rate page 25 Regulating the mobile phone industry: beware the ‘waterbed’ effect Christos Genakos and Tommaso Valletti examine the impact of recent price cap regulation 1 CentrePiece Autumn 2007 Harnessing success: incentives for invention and technology transfer in universities Universities are a key source of the new scientific knowledge that drives long-run economic growth. But what are the incentives for scientists to generate commercially valuable inventions and for university managers to license such technologies to the private sector? Research by Mark Schankerman and colleagues investigates. erhaps the greatest long- European and Asian universities are less term productivity advances involved in this form of technology transfer come through but are rapidly expanding their activities. breakthroughs in basic The rapid growth of technology knowledge – and a transfer in the United States is in part due Psubstantial proportion of the research and to the Bayh-Dole Act of 1980. This piece of development (R&D) that creates new legislation not only gave universities the knowledge and leads to increased right to patent new discoveries but also productivity is done in universities. mandated them to license inventions made University research not only raises the with federally sponsored research to the productivity of private sector R&D (through private sector. Now, nearly all US research ‘knowledge spillovers’) and encourages universities have a technology licensing more of it to be done; it also leads to office and explicit intellectual property inventions that can be commercialised, policies and royalty-sharing arrangements either through licensing to private firms or for their scientists. via the formation of new start-up companies. Analysing technology Such ‘technology transfer’ by transfer universities has grown dramatically in the In essence, technology transfer involves past two decades, particularly in the United two distinct activities: innovation by States. Between 1991 and 2004, the university scientists and commercialisation number of US university patent by the university’s technology licensing applications rose from 1,584 to 10,517, office (see Figure 1). In the first stage, and licensing income increased from $218 scientists produce both publications and million to $1.4 billion (which is 6% of inventions. The mix of these two may be federal R&D financing for universities). influenced by the incentive of money, Image: Ron Achin 2 CentrePiece Autumn 2007 either for themselves directly or as the role of incentives and other Our central finding is that incentives enhanced funding for their research institutional features that can make the are effective: universities that give greater laboratories. Other incentives – such as process of technology transfer more royalty incentives do much better in terms promotion and tenure rules, and intrinsic effective. Given the importance of of licensing income from technology motivation to do basic and applied research for long-term growth, it is critical transfer. This works both by inducing research – are also likely to play a role. to understand what drives scientific greater effort by researchers and through The second stage is the endeavour and technology licensing ‘sorting’ of the most productive and commercialisation of inventions by the activity. entrepreneurial scientists into high-royalty technology licensing office, which decides Is research a purely intellectual pursuit universities. We also find that royalty whether to patent and license inventions, driven by intrinsic motivation, or do incentives have a much larger impact in identifies licensees and structures economic incentives play a role in the way private universities than in public ones, contracts. The effectiveness of the that scientists structure their work? What and technology licensing activity is more technology licensing office is likely to be are the most appropriate incentives for commercially effective in the former. influenced by the university's objectives, managers in technology licensing offices? In the United States, universities government constraints on licensing and And how is technology transfer usually claim exclusive ownership (‘control incentives given to its managers. performance influenced
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