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Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it

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  • Scotchmer, Suzanne

Abstract

We investigate optimal rewards in an R&D model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We investigate the optimal policy when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."

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Bibliographic Info

Paper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt2p5543p0.

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Date of creation: 15 Apr 2009
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Handle: RePEc:cdl:compol:qt2p5543p0

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Keywords: Scarce ideas; imagination; innovation; real options; search models; rewards to R unknown hazard rate; Social and Behavioral Sciences; Business; Technology and Innovation;

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References

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  1. Vincenzo Denicolo & Luigi Alberto Franzoni, 2004. "Patents, Secrets, and the First-Inventor Defense," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 517-538, 09.
  2. Nisvan Erkal, 2003. "The Decision to Patent, Cumulative Innovation,and Optimal Policy," Department of Economics - Working Papers Series 877, The University of Melbourne.
  3. Jay P. Choi, 1991. "Dynamic R&D Competition under "Hazard Rate" Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 596-610, Winter.
  4. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
  5. Weeds, H., 2000. "Strategic Delay in a Real Optimna Model of R&D Competition," The Warwick Economics Research Paper Series (TWERPS) 576, University of Warwick, Department of Economics.
  6. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. repec:fth:coluec:549 is not listed on IDEAS
  8. Erkal, Nisvan & Scotchmer, Suzanne, 2007. "Scarcity of Ideas and Options to Invest in R&D," Competition Policy Center, Working Paper Series qt4s01d7md, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  9. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
  10. Matthew Mitchell, 2000. "Rewarding Sequential Innovators: Patents Prizes and Buyouts," Econometric Society World Congress 2000 Contributed Papers 1650, Econometric Society.
  11. Hugo Hopenhayn & Gerard Llobet & Matthew Mitchell, 2006. "Rewarding Sequential Innovators: Prizes, Patents, and Buyouts," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1041-1068, December.
  12. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  13. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter.
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Cited by:
  1. Christian Riis & Xianwen Shi, 2012. "Sequential Innovation and Optimal Patent Design," Working Papers tecipa-447, University of Toronto, Department of Economics.
  2. Suzanne Scotchmer, 2013. "Patents in the University: Priming the Pump and Crowding Out," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 817-844, 09.
  3. Zhang, Tianle, 2009. "Patenting in the Shadow of Independent Discoveries by Rivals," MPRA Paper 32917, University Library of Munich, Germany, revised 2011.
  4. Suzanne Scotchmer, 2011. "Comment on "Funding Scientific Knowledge: Selection, Disclosure and the Public-Private Portfolio"," NBER Chapters, in: The Rate and Direction of Inventive Activity Revisited, pages 103-105 National Bureau of Economic Research, Inc.

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