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Intellectual Property Rights and Crop-Improving R&D under Adaptive Destruction

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  • Oleg Yerokhin
  • GianCarlo Moschini

    ()

Abstract

This paper studies how the strength of intellectual property rights (IPRs) affects investments in biological innovations when the value of an innovation is stochastically reduced to zero because of the evolution of pest resistance. We frame the problem as a research and development (R&D) investment game in a duopoly model of sequential innovation. We characterize the incentives to invest in R&D under two competing IPR regimes, which differ in their treatment of the follow-on innovations that become necessary because of pest adaptation. Depending on the magnitude of the R&D cost, ex ante firms might prefer an intellectual property regime with or without a "research exemption" provision. The study of the welfare function that also accounts for benefit spillovers to consumers—which is possible analytically under some parametric conditions, and numerically otherwise—shows that the ranking of the two IPR regimes depends critically on the extent of the R&D cost.

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File URL: http://hdl.handle.net/10.1007/s10640-007-9140-5
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 40 (2008)
Issue (Month): 1 (May)
Pages: 53-72

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Handle: RePEc:kap:enreec:v:40:y:2008:i:1:p:53-72

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Biological resistance; Intellectual property rights; Markov perfect equilibrium; Patents; Research exemption; R&D; Sequential innovation; L00; O31; O34; Q28;

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References

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  1. William A. Brock & Anastasios Xepapadeas, 2003. "Valuing Biodiversity from an Economic Perspective: A Unified Economic, Ecological, and Genetic Approach," American Economic Review, American Economic Association, vol. 93(5), pages 1597-1614, December.
  2. Moschini, GianCarlo, 2004. "Intellectual Property Rights and the World Trade Organization: Retrospect and Prospects," Staff General Research Papers 10442, Iowa State University, Department of Economics.
  3. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
  4. Timo Goeschl & Timothy Swanson, 2003. "Pests, Plagues, and Patents," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 561-575, 04/05.
  5. Alix-Garcia, Jennifer Marie & Zilberman, David, 2004. "The Effect of Market Structure on Pest Resistance Buildup," 2004 Annual meeting, August 1-4, Denver, CO 20273, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Hurley, Terrance M. & Secchi, Silvia & Babcock, Bruce A. & Hellmich, Richard L., 2002. "Managing the Risk of European Corn Borer Resistance to Bt Corn," Staff General Research Papers 10294, Iowa State University, Department of Economics.
  7. Denicolo, Vincenzo, 1999. "The optimal life of a patent when the timing of innovation is stochastic," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 827-846, August.
  8. Timo Goeschl & Timothy Swanson, 2003. "On Biology and Technology: The Economics of Managing Biotechnologies," Working Papers 2003.42, Fondazione Eni Enrico Mattei.
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Cited by:
  1. Marc Baudry & Adrien Hervouet, 2014. "Innovation on the seed market: the role of IPRs and commercialisation rules," Working Papers 1411, Chaire Economie du Climat.

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