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Experimentation, Patents, and Innovation

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  • Daron Acemoglu
  • Kostas Bimpikis
  • Asuman Ozdaglar

Abstract

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. (JEL D82, D83, O31, O33, O34)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 1 (February)
Pages: 37-77

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:1:p:37-77

Note: DOI: 10.1257/mic.3.1.37
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  1. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July.
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Citations

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Cited by:
  1. GABLER, Alain & POSCHKE, Markus, 2011. "Growth through Experimentation," Cahiers de recherche 11-2011, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  2. Keller, Godfrey & Rady, Sven, 0. "Breakdowns," Theoretical Economics, Econometric Society.
  3. B. Zorina Khan, 2008. "Premium Inventions: Patents and Prizes as Incentive Mechanisms in Britain and the United States, 1750-1930," NBER Chapters, in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 205-234 National Bureau of Economic Research, Inc.
  4. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.

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