Michael Munger: It is always a pleasure, even if it is deflating.

Michael Munger: Well, it--that's an important consideration. The fact that the amount of permission differs quite a bit --and I've heard this explanation, um, that one of the things that Silicon Valley and Boston, Massachusetts differ on, is the use of non-compete agreements. And non-compete agreements were quite common in Massachusetts, which meant that--and this story may be apocryphal. It may be a difference that may not, may cause as much of the difference. But, suppose that we're looking at Boston and Silicon Valley in 1980. And Boston is a lot of colleges and researchers. But Massachusetts law allows--and which, that means it encourages non-compete agreements. So, if I'm working for an innovator, I quit and go to work for somebody else, I cannot use any of my knowledge for at least a year. And by that time it's enough out to out of date that I'm probably not going to move around. California doesn't allow, or at least restricts the use of non-compete agreements. That means that I can go somewhere else without the state or my employer's permission. And, that fact is probably capitalized in salaries--maybe people want higher salaries to work in Boston. But, it meant that the degree of permissionless innovation in Boston held them back. And that's why we think of Silicon Valley and not Boston as being the place where much of the innovations in the Internet and the sharing economy have taken place. Now, that's a--it's a Just So Story. It looks at one small difference. But, there probably is something to it, in the sense that having a non-compete agreement where I couldn't go something else and do the same thing for a year or two meant that it was hard for people to move around. It was harder to hire talent. And it's a kind of transactions cost or restriction on how quickly people could adapt.

Russ Roberts: Yeah. It's culturally, really interesting.

Michael Munger: What [?]. That's an interesting--it's not exactly the competitors--

Michael Munger: Yeah. Letters and documents.

Russ Roberts: And, when a new product comes along, somebody has a temporary monopoly on some idea or process, it works pretty well, that new product, it might. If it attracts customers, it's going to attract competitors. And they come onto that dance floor. And they're trying to get at the same--I'm going to extend the metaphor one more time, here. They might use the same materials as the existing competitor. So, there's usually room there, too. There's going to be multiple people providing those raw materials, so that they can get access to the customers, also. And they might try to jazz it up a little bit. They might try to make it a little fancier. They might try to add features. Their version of the dance might be a little more exotic. But, there's still going to be rules about how you treat your competitors, in terms of--you can't break their windows. And the last thing--I've got to add this just because it's such a nice mix of these metaphors--the jazz band, where the members of the band get solo. But they also have to play together. And the whole, the motif of jazz is another way of thinking about emergent order: that, occasionally, you get to play by yourself, and really shine. Really show off. And really try to impress the other person. Sometimes two musicians will back and forth, riffing and trying to show who has got the better command of the improvisational skill. But ultimately you come back together and you have to figure out a way for your melody, your harmony, etc., to merge with everyone else's. And--just a beautiful thing. Totally spontaneous.

Michael Munger: Nope. They are not.

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Michael Munger: but others that might be affected by it. That's a good analogy.
Michael Munger: Or too often. You use a leaf blower, 'I'm tired of that.'

Russ Roberts: So, I don't--you know, I'd like to see that paper.

Michael Munger: But there is a kind of equalizer. Because we're all doing this on Twitter. But, it happened just before the podcast with Megan McArdle came out: She's teaching a class at Duke this semester--

Michael Munger: It can't work.

Russ Roberts: And, of course, yeah. For sure.

Michael Munger: It's even called a Certificate of Need. You have to get your competitors to say, 'You know, we can't provide this service.'

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Russ Roberts: I guess my thought on that--which goes against my normal biases. But, it's an interesting thing just to chew on--and I invite listeners to do so, as I'm doing now--to chew on the fact, well, who does that help, a non-compete agreement? Usually we'd say: Well, it helps the worker, because I'm free then to go work for another company right away. But, of course, if that made it hard for companies to make investments in workers, that's not good for a worker. And it certainly discourages companies from locating there. So, it could have cut the other way.