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Introduction to Modern Economic Growth be used as many times as one wishes, then the size of its potential market will be a crucial determinant of whether or not it is profitable to implement it and whether to research it in the first place This is well captured by a famous quote from Matthew Boulton, James Watt’s business partner, who wrote to Watt: “It is not worth my while to manufacture your engine for three countries only, but I find it very well worth my while to make it for all the world.” (quoted in Scherer, 1984, p 13) To see why non-rivalry is related to the market size effect, imagine another standard (rival) input that is also essential for production A greater market size will not typically induce firms to use this other input more intensively, since a greater market size and thus greater sales means that more of this input has to be used It is the fact that, once invented, non-rival ideas can be embedded in as many units desired without further costs that makes the market size effect particularly important In the next section, we will discuss some empirical evidence on the importance of the market size effect Nevertheless, it is important to emphasize that the non-rivalry of ideas does not make ideas or innovations pure public goods Recall that pure public goods are both non-rival and non-excludable While some discoveries may be, by their nature, nonexcludable (for example, the “discovery” that providing excessively high-powered incentives to CEOs in the form of stock options will lead to counterproductive incentives and cheating), most discoveries can be made excludable by patenting An important aspect of the models of technological progress will be whether and how discoveries are protected from rivals For this reason, intellectual property rights protection and patent policy often play an important role in models of technological progress 12.2 Science, Profits and the Market Size Another major question for the economic analysis of technological change is whether innovation is mainly determined by scientific constraints and stimulated by scientific breakthroughs in particular fields, or whether it is driven by profit motives Historians and economists typically give different answers to this question Many 542