Bar Talk: Informal Social Interactions, Alcohol Prohibition, and Invention
79 Pages Posted: 4 Dec 2019
Date Written: November 18, 2019
To understand the importance of informal social interactions for invention, I examine a massive and involuntary disruption of informal social networks from U.S. history: alcohol prohibition. The enactment of state-level prohibition laws differentially treated counties depending on whether those counties were wet or dry prior to prohibition. After the imposition of state-level prohibition, previously wet counties had 8-18% fewer patents per year relative to consistently dry counties. The effect was largest in the first three years after the imposition of prohibition and rebounds thereafter. The effect was smaller for groups that were less likely to frequent saloons, namely women and particular ethnic groups. Next, I use the imposition of prohibition to show that the social network exhibited path dependence in the sense that as individuals rebuilt their networks following prohibition, they connected with new individuals and patented in new technology classes. Thus, while prohibition had only a temporary effect on the rate of invention, it had a lasting effect on the direction of inventive activity. Additionally, I exploit the imposition of prohibition to show that networks increase invention by exposing individuals to others' ideas in addition to simply facilitating collaboration and that informal and formal interactions are complements in the invention production function.
Keywords: Patents, Invention, Social Interactions, Social Networks, Economic History
JEL Classification: N, O3
Suggested Citation: Suggested Citation