Experimentation , Patents , and Innovation

This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge. Each firm receives a signal on the success probability of a project and decides when to experiment. Successes can be copied. First, we assume that signal qualities are the same. Symmetric equilibria involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous experimentation. Appropriately designed patents implement the optimal allocation. Finally, we discuss the case when signals differ and are private information.

[1]  S. Scotchmer,et al.  Innovation and Incentives , 2004 .

[2]  M. Cripps,et al.  Strategic Experimentation with Exponential Bandits , 2003 .

[3]  Suzanne Scotchmer,et al.  Intellectual Property: When Is It the Best Incentive System? , 2002, Innovation Policy and the Economy.

[4]  Suzanne Scotchmer,et al.  On the Optimality of the Patent Renewal System , 1999 .

[5]  Jeremy I. Bulow,et al.  The Generalized War of Attrition Forthcoming, American Econonomic Review , 1997 .

[6]  Robert H. Porter,et al.  The Timing and Incidence of Exploratory Drilling on Offshore Wildcat Tracts , 1996 .

[7]  Russell J. Lundholm,et al.  Endogenous Timing and the Clustering of Agents' Decisions , 1995, Journal of Political Economy.

[8]  Curtis R. Taylor.  Digging for golden carrots: an analysis of research tournaments , 1995 .

[9]  S. Kapur.  Technological Diffusion with Social Learning , 1995 .

[10]  Douglas Gale,et al.  Information Revelation and Strategic Delay in a Model of Investment , 1994 .

[11]  Jeremy I. Bulow,et al.  Rational Frenzies and Crashes , 1991, Journal of Political Economy.

[12]  C. Shapiro,et al.  Optimal Patent Length and Breadth , 1990 .

[13]  P. Klemperer.  How Broad Should the Scope of Patent Protection Be , 1990 .

[14]  P. Romer.  Endogenous Technological Change , 1989, Journal of Political Economy.

[15]  G. Grossman,et al.  Quality Ladders in the Theory of Growth , 1989 .

[16]  George Hendrikse,et al.  The Theory of Industrial Organization , 1989 .

[17]  Dan Kovenock,et al.  Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration , 1989 .

[18]  Chris Cannings,et al.  The n-person war of attrition , 1989 .

[19]  Charles A. Wilson,et al.  You have printed the following article : The War of Attrition in Continuous Time with Complete Information , 2007 .

[20]  Partha Dasgupta,et al.  Patents, Priority and Imitation or, the Economics of Races and Waiting Games , 1988 .

[21]  M. Stinchcombe,et al.  Extensive From Games in Continuous Time: Pure Strategies , 1987 .

[22]  D. Fudenberg,et al.  A Theory of Exit in Duopoly , 1986 .

[23]  Gerald B. Folland,et al.  Real Analysis: Modern Techniques and Their Applications , 1984 .

[24]  Alan R. Earls,et al.  Digital equipment corporation. , 2004, Analytical chemistry.

[25]  Jennifer F. Reinganum.  Dynamic games of innovation , 1981 .

[26]  E. Kitch,et al.  The Nature and Function of the Patent System , 1977, The Journal of Law and Economics.

[27]  J. M. Smith.  The theory of games and the evolution of animal conflicts. , 1974, Journal of theoretical biology.

[28]  K. Arrow.  Economic Welfare and the Allocation of Resources for Invention , 1962 .