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On the Winner-Take-All Principle in Innovation Races

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  • Vincenzo Denicolo
  • Luigi A. Franzoni

Abstract

What is the optimal allocation of prizes in an innovation race? Should the winner take all, or is it preferable that the original inventor shares the market with subsequent independent duplicators? Some recent papers in law and economics have argued that the latter, more permissive solution is socially preferable under mild conditions. We re-examine that issue, arguing that a permissive regime may turn the innovation race into a waiting game, reducing the power of incentives, and may invite socially wasteful duplicative R&D expenditures. In a model that accounts for these effects, the winner-take-all system turns out to be preferable in a broad set of circumstances, especially in highly innovative industries. (JEL: K11, L1, O34) (c) 2010 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 5 (09)
Pages: 1133-1158

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:5:p:1133-1158

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Cited by:
  1. Emeric Henry, 2010. "Promising the right prize," Sciences Po publications 7758, Sciences Po.
  2. Zhang, Tianle, 2012. "Patenting in the shadow of independent discoveries by rivals," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 41-49.
  3. Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.
  4. Emeric Henry, 2010. "Runner-up Patents: Is Monopoly Inevitable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(2), pages 417-440, 06.
  5. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, vol. 38(3), pages 497-517, March.
  6. Richard Gilbert, 2011. "A World without Intellectual Property? A Review of Michele Boldrin and David Levine's Against Intellectual Monopoly," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 421-32, June.

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