The following are projects we are currently pursuing.
Studies on Rate of Technological Progress in High Technology Industries
1. Grid Parity of Solar Electricity
The cost of generating electricity using solar photovoltaics (PV) has decreased rapidly in the last few decades. Solar electricity generation is, however, much more expensive than generation using coal or natural gas. The Sunshot initiative announced by Department of Energy has set the goal of reducing the installed cost of solar systems to $1/watt by 2020(from the current $4/watt). Current models that predict the future cost of solar generated power simply extrapolate from the past trends observed in the price/watt of solar PV systems. A key missing element in these models is how market structure, and competition among firms, affects the rate of decrease in cost of solar electricity generation. We develop economic models that predict the long run equilibrium market structure of the industry from its technology parameters. Such models provide a better estimate of the time at which solar electricity will achieve parity with conventional generation sources.
2. Technological Progress in Rechargeable Batteries for Electric Cars
The cost of the electric car (both plug-in hybrid and fully electric) remains much higher than gasoline powered cars. The battery is the most expensive component of the car and accounts for nearly 50% of the cost of electric cars. Most of the R&D efforts have hence focused on reducing the cost of the battery. The Department of Energy has set the goal of reducing the cost of batteries by 70% from its current value to make electric cars competitive with gasoline cars. As with the project on solar industry, we develop economic models that take into account the effects of competition among firms in predicting the future path of cost reduction in this industry.
Studies on International Trade in High Technology Industries
3. International Pattern of Production and Trade in Solar Photovoltaics
The international pattern of production and trade has changed dramatically over the lifetime of the solar industry. While U.S was the pre-eminent leader in solar PV production at the beginning of the industry, it was quickly replaced by Japan in early part of the last decade and then by Germany. The last few years, however, have been marked by the dramatic rise of China as a producer and exporter of solar cells and modules. We look at the factors that have driven this changing pattern of production and trade, and examine the consequences of government policies like tariffs and subsidies on the pattern of trade and production, and on national welfare.
4. International Pattern of Production and Trade in Rechargeable Batteries
The pattern of production and trade in batteries for electric cars have followed a path similar to that of the solar industry. Production has shifted from the leading automakers and their associated in Japan to companies in Korea and China. We study the factors that affect the pattern of production and trade in this industry.
5. Diffusion of Technology in the DRAM Industry
The DRAM industry has experienced more pronounced changes, and over longer time period, in the pattern of production and international trade. While U.S firms dominated the market in 1970s, production shifted away to Japan in 1980s and Korea and Taiwan since 1990s. This change in national market shares has been accompanied by a process of technology diffusion, with technology diffusing out from current technology leaders to new entrants who catch up with the leaders in the subsequent technology generations. We study the factors that influence the rate of technology diffusion across countries in the DRAM industry.
Studies on Market Structure in High Technology Industries
6. Investment in Electric Grid Infrastructure for Integration of Wind and Solar sources
Integration of wind and solar generation into the electric grid poses many problems. The ideal locations for wind farms or solar power plants are often in remote places, where there is no existing transmission infrastructure in place to carry the electricity to load sites. Further, both wind and solar are intermittent sources and variability in generation often means that these might work well when used in conjunction with energy storage (like batteries) to smooth out the intermittency. Lack of investment in transmission and storage infrastructure is often cited as a big impediment to electricity generation with wind and solar. Many studies have argued that a lack of consensus on who should bear the upfront cost of building the transmission lines, and how the cost should be shared across the different parties affected by the project, has been a deterrent delaying the construction of new transmission and storage. We study how differences in ownership structures of these grid assets affect the investment into these assets, and the differences in welfare that result under different ownership structures.
7. Vertical Specialization in High Technology Industries
Some high-technology industries like the computer industry and the semiconductor industry show increasing levels of vertical specialization over time. Firms engage in all activities along the production chain in the initial stages of the industry, but over time firms specialize in one or few of the stages. In the solar industry, in contrast, production has become vertically integrated over time, with firms starting at one stage of production and integrating both backward and forward into other stages. We study the determinants of the vertical structure of the industry, with an aim of predicting the long run vertical structure from underlying technology parameters.
8. Role of Vertical Consortia in High Technology Industries
In vertically specialized industries undergoing ongoing technological change, co-ordination of different stages of production and innovation becomes a difficult problem. Even when production is vertically integrated, final product firms need to coordinate their innovative activities with the suppliers of equipment and materials. We examine the coordination role that vertical consortia can play in such industries. The College of Nanoscale Science and Engineering is the home to two such consortia, SEMATECH in the semiconductor industry and the Photovoltaic Manufacturing Consortium (PVMC) in the solar industry.
9. Vertical Specialization and Outsourcing of R&D
Vertical specialization in high-technology industries has often been accompanied by increasing geographic dispersion in production. In semiconductor industry, most previous manufacturers of chips have outsourced manufacturing to specialized firms (foundries), choosing to focus on R&D and design. A pertinent question is whether these upstream activities like R&D and design will follow manufacturing and tend to move closer to the manufacturing hubs in other countries. We study the incentives for R\&D and design activities to locate closer or away from manufacturing hubs.
Studies on Valuation of High Technology Companies
10. Valuation of High-Technology Companies
Valuing companies in high technology industries face many problems. There are numerous new companies in these industries, which hardly give any dividends, or obtain negative profits for many years. New industries often got through “shake-out” faces in which many new entrants enter the industry and subsequently exit as the industry matures begin to mature. We build on our industry models of solar and rechargeable batteries developed in other projects to predict long run equilibrium profits in the industry and use that to value companies in these industries.
