Katonomics: Why Bother?

Fortunately for us all, Nicola the Katonomist is alive and well, even though she has bravely -- some would say rashly -- exchanged the nine lives of the cat for the half-life of the economist.  Be that as it may, we are privileged to have one final piece from Nicola, prepared at her point of departure to the demi-monde of the British civil service and the UK Intellectual Property Office.  This is what she writes:

Katonomics: Why Bother?

Economics has a key role in IP. I hope that my posts over the past year have been able to convince you as much. Economics, when applied to policy, allows us to evaluate, tweak and improve regulations. IP policy, as a tool to incentivise innovation and improve economic development, will evolve with the application of economics.

Elizabeth Webster nicely summarised some of the benefits of economics analysis of IP in this seminar for WIPO (check out the video.) She asked, “Why (on earth) do economists do these sort of studies?” She argues that economic evaluation of IP policy is necessary because anecdotes are ambiguous and cannot determine policy. Empirical studies are also needed because theory can be ambiguous and does not suggest the magnitude of effects. Further, empirical studies give us confidence in particular views and can convince sceptics.

Economics is fundamentally about choice

As a discipline, it allows us to investigate how we maximise social welfare with finite resources. The IP system balances the interests of innovators and the interest of society. Economics has the tools to evaluate this social contract.

The past decade has not been particularly good for economics. The failure of macroeconomic models, or at least, the failure of the application of these models, to predict and respond to the current recession, has lead to loss of confidence in the discipline. Indeed, this embarrassing video of two prominent Nobel Prize-winning economists unable, or unwilling, to answer basic questions about the US economy should be a wake-up call. (To split hairs, the Nobel Prize in Economics isn’t a true Nobel Prize.) Reliance on models removed from reality, incomplete data and ignorance of the limitations of economics does the profession no favours. Economists can do better [Merpel notes that IPKat readers often point this out.]

Economics has long been known as the “dismal science” and will likely continue to be so. Heavy critique of economic assumptions, and their separation from reality, is not without merit. Criticism of economics also comes from within. Economist Deirdre McCloskey argues that a lot of modern economics is unscientific rubbish. Back when your Katonomist was a wee kitten, the first economics joke she heard poked fun at absurd economic assumptions:

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Let’s build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener..."

Despite these criticisms, I still have faith that my beloved discipline has much to offer. Economics, as a key part in the large machine of the IP system, can inform and evaluate policy in ways I believe other disciplines cannot. Katonomics forever! 

As a final note, I would like to say thank you very much to Jeremy Phillips, my fellow IPKat bloggers and IPKat readers for allowing me the enjoyable opportunity to share my thoughts on IP and Economics. It has been a true pleasure and I look forward to my continued involvement in the IPKat community in the comments section. 

And for our sister discipline,
Happy International Year of Statistics!