1 / 13

Investment Basics and Policy: R&D and Communications Networks

Investment Basics and Policy: R&D and Communications Networks. George S. Ford Chief Economist. PHOENIX. CENTER. Simple Investment Decision.  V S ≥ . K(1+r). Share of Social Value Captured by Firm as Profits (  < 1). Cost of Capital. Capital Investment. Social Value Generated by

colin
Download Presentation

Investment Basics and Policy: R&D and Communications Networks

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Investment Basics and Policy: R&D and Communications Networks George S. Ford Chief Economist PHOENIX CENTER

  2. Simple Investment Decision VS ≥ K(1+r) Share of Social Value Captured by Firm as Profits ( < 1) Cost of Capital Capital Investment Social Value Generated by Project

  3. Example VS ≥ K(1+r) 0.20∙10? 1 (1+0.10) 2 ≥ 1.1 The project is worth doing.

  4. Example VS ≥ K(1+r) 0.10∙10? 1 (1+0.10) 1 ≤ 1.1 The project is not undertaken.

  5. Policy Response: Subsidy VS ≥ K(1+r) 0.10∙10? 1 (1+0.10) 1 ≤ 1.1-0.2 1 ≥ 0.9 Subsidy The subsidy makes it profitable.

  6. Policy Response: Patents VS ≥ K(1+r) 0.10∙10M? 1M(1+0.10) 0.15 ∙8M? 1.1M 1.2M ≥ 1.1M Patent The patent makes it profitable.

  7. R&D Policy in the U.S. Increase appropriation of social value through patents Subsidize basic and applied research

  8. Modern Communications Policy Model VS ≥ 0 “I want it, therefore it has value, therefore it must be done.”

  9. Modern Communications Policy Model:Society’s Decision $$$ How do I monetize this? VS ≥ K(1+r) “If society values it more than it costs, it should be done.”

  10. Muni WIFI Kooky business plan that limits extraction Underestimated Costs VS ≤ K(1+r) Exaggerated estimate of value Municipal entry almost always implies long-term subsidization.

  11. Network Neutrality Social Value of Broadband/Innovation is Huge VS ? K(1+r) Any effort to monetize part of it is criminal Who’s going to foot the bill?

  12. Summary Costs come in dollars, so Social Value must be monetized. Firms must extract portions of social value as rents in order to justify investing in projects. Capitalism is not illegal. Firms will under invest from a social perspective. There will always be complainers. We recognize this is other contexts, why not communications? We’d prefer to avoid monopoly outcomes, but we can’t have perfect competition (or free service), or even attempt to mimic it’s properties. Markups over marginal cost are an essential component of communications markets.

More Related