The recognition of opportunities for profitable change and the pursuit of those opportunities all the way through to their adoption in practice. 

1. Rewards for productive entrepreneurial activity.
2. Easy to start and grow a business.
3. Keep winners on their toes.
4. Disincentives for unproductive activity.

What I create/own is protected. 

*Can be tangible or intangible

• USA- cheaper and less of a process than most other countries (Brazil, India)

Bankruptcy protection>encourages risks
Access to finance>well-functioning credit/capital markets are very important
This is important because if it's too hard to start a business, they will move underground, and this is inefficient.

Threat is the incentive for incumbent firms to continue to innovate.

Political process can squash competition:

• Barriers to entry
• Trade barriers

• Time spent in court, is time away from innovating
• As long as gov't. are large and have a role in business, unproductive entrepreneurial activity will continue
• Most severe problems will be fixed by a rule of law, and rooting out corruption
• Problem is worse in other countries and past errors.

• In well developed countries reforms usually emerge vial a political process
• Political decision making is inefficient
• Businesses battle over what gov't policies regarding innovation should look like

Entrepreneurship that is beneficial to both the entrepreneur as well as society, which remains innovative and constantly improving.

1. New or improved goods.
2. New production methods/processes.
3. New source or supply of a raw material.
4. Opening of a new market.
5. New industry organization.

Activity whose objective is to use the government to seek private economic benefits by transferring (actual or potential) wealth away from others.

*Remember the Bastiat's Canstick Makers' Petition

-Tempting when times are difficult

"The rules of the game"

Incentives for innovators→balance of productive and unproductive entrepreneurship→prosperity and economic growth

• Rome- "head tax", corruption was rampant, disconnect between technology and productivity
• China-lack of property rights, imperial examinations the route to success
• Early Middle Ages-violence the route to success

The actions taken to place a corporation in the best possible situation in a given nonmarket environment.

• Legal Space-issues can be murky
• Political Space-Regulations may be nonexistent or not clearly apply to your product/industry.
• Competitors can use the courts to harm you.

1. Issues
2. Interests
3. Institutions
4. Information

Matters of dispute

• New
• Technical
• Feature a great deal of uncertainty

Groups that care about a particular issue

• Incumbents vs. Newcomers
• Innovators vs. Non-Innovators
• Innovators vs. Innovators
• "Public Interest" Organizations

Arenas where disputes are addressed

• The courts play an important role in innovations issues
• Legislators and regulators move slowly on many (but not all) innovation issues

What we know about an issue

• Consequences of policy choices often uncertain on innovation issues
• Changes quickly as markets change
• Will often be technical

• Property refers to the protection and control over something-physical or intellectual
• A property right can't be infringed without the consent of holder
• Property can be exchanged, voluntarily transferred, or in some cases, licensed

1. Facilitate economic transactions
2. Generate incentives to create property because of anticipated returns from its use

Production of information is characterized by:

1. High fixed costs
2. Low marginal costs of copying and dissemination

1. Typically non-rivalrous in consumption
2. Hard to exclude users

The benefits of giving an incentive to create vs. the costs of granting a monopoly over the information.

Optimal rule: rights that protect IP just long enough to maximize the benefits to the creator and society at large.

1. Utility
2. Novelty
3. Non-Obviousness

• Validity is uncertain
• Boundaries of the rights are not clear and predictable
• Costs of negotiating to have access to IP are high

• Institutions- Congress and the President (differences between House and Senate bills need to be adjusted)
• Interests- Innovators vs. Innovators; Incumbents vs. Newcomers

• Grassroots mobilization
• Coalition burning (ad hoc)
• Testimony to Congress
• Lobbying (information provision)

A trademark protects words, names, symbols, sounds, or colors that distinguish goods and services from others.

Can be registered with federal governments, state governments, or both.

Copyright is a form of protection provided by the Constitution and the laws of the US to authors of literary, dramatic, musical, artistic, and certain other intellectual works. Creativity and originality are key.

Duration: life of author + 70 years; if owned by corp. 95 years

• Purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
• the nature of the copyrighted work;
• the amount and substantiality of the portion used in relation to the work as a whole;
• the effect of the use upon the potential market for or value of the copyrighted work

• Shackling information, prevent improvement
• By copyrighting certain things we can lower competition and decrease innovation
• Knock-offs keep clothing industry alive; creates the notion of "induced obsolescence"

1. Set realistic time limits for copyrights
2. Restore "fair use"
3. Undo the Digital Millennium Copyright Act

• IP protection is important because it addresses the incentive for country A to free ride on innovations in country B, especially if B is innovative and A isn't
• Not important is the returns to innovation in country B are sufficiently high, existence of paten rights in country A are not necessary to spur innovation
• Allocation of returns to innovation are always affected by IP

• First agreed to in 1886, last revised 1979
• Equal treatment in copyright protection
• Minimum standards:50 years for most creations

• Written in 1996, ratified in 2002
• Goal: to promote the protection of intellectual property throughout the world, the treaty added in other information technology that wasn't previously available for protection

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

• Agreed to in 1994
• Equal treatment in copyright protection
• Minimum standards: 20 years
• Builds on existing agreements (Paris Convention 1883)
• Developing countries get longer time frame for compliance
• Exceptions for pharmaceuticals ongoing issue

• Usually takes the form of punishments imposed by other countries
• Groups like the WTO can rule on whether punishments are legitimate.
• Many countries still have weak IP protection, regardless of the treaties

Compulsory licensing occurs when a government forces the holder of a patent, copyright, or other exclusive right to grant use to the state or others, usually for the purposes of:

1. Public Interest
2. Anti-Competitive actions
3. "national emergency or other circumstances of extreme urgency"

• There are few laws restricting how PII can be used by private parties
• Internet has made is much easier to gather personal information, raising privacy ?'s
• Improvement in IT has made it easier to make massive databases

1. Right to know (what data is collected, how is it used, will it be shared, how long will it be stored?)
2. Choice (will data be collected unless I opt-out, or will data be collected only if I opt-in?)
3. Is there freedom from arbitrary treatment? (can I fix errors)

New uses for information drive revenue for many companies, placing limits on information can hinder innovation, as technology continues to advance battles will continue to escalate

• Internet advertising
• Merging online and offline databases
• Personalized shopping
• Interactive experiences

Objective: Prevent federal regulation

• Use self-regulation as a means to this end
• TRUSTe: Private certifier of company privacy policies
• Many corporations have also created the position of Chief Privacy Officer 
• Network Advertising Initiative (NIA): Cooperative of online marketing corporations that adhere to certain minimum privacy practices

1. Debt: bank loans, private loans (often requires collateral to guarantee debt
2. Equity: friends/family, venture capital, private equity, angel investors, public stock offering (provides partial ownership to the firm)

1. Identify innovative ideas/firms that have the potential for big payoff
2. Provide capital to firms at various stages, from seed money to funds for expansion
3. Work closely with management to make sure VC goals and MGMT goals are aligned
4. Tie future funding and (and prospects for IPO) to performance targets
5. GOAL: Sell stake in firm for significant profit (high risk, high reward)

Huge Impact:

• 11% of US employment due to jobs in companies started with VC money
• Industries: Biotech and IT among others

One commonality: Minimal Regulation

Size: Hedge funds>Private equity>VC

Leverage: Hedge funds and private equity use more often than VC

Holding time: VC>PE>HF

•  Hedge funds tend to invest in a wider variety of financial instruments
• Private equity firms often put new management in place when they buy up a company

• VC firms are not interdependent w/ financial systems
• VC funds are not directly available to "retail" investors
• VC industry is small
• VC firms do not use long-term leverage, rely on short term funding, or create third party