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

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  • Erkal, Nisvan
  • Scotchmer, Suzanne
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    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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    File URL: http://www.escholarship.org/uc/item/74c709qr.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt74c709qr.

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    Date of creation: 01 May 2009
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    Handle: RePEc:cdl:oplwec:qt74c709qr

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    Related research

    Keywords: Scarce ideas; imagination; innovation; real options; search models; rewards to R unknown hazard rate;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. 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.
    2. Choi, J.P., 1991. "Dynamic R & D Competition Under "Hazard Rate" Uncertainty," Discussion Papers 1991_10, Columbia University, Department of Economics.
    3. Matthew Mitchell, 2000. "Rewarding Sequential Innovators: Patents Prizes and Buyouts," Econometric Society World Congress 2000 Contributed Papers 1650, Econometric Society.
    4. 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.
    5. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
    6. repec:fth:coluec:549 is not listed on IDEAS
    7. Nisvan Erkal, 2003. "The Decision to Patent, Cumulative Innovation,and Optimal Policy," Department of Economics - Working Papers Series 877, The University of Melbourne.
    8. Erkal, Nisvan & Scotchmer, Suzanne, 2007. "Scarcity of Ideas and Options to Invest in R&D," Department of Economics, Working Paper Series qt2hq9s5kg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Gerard Llobet & Hugo Hopenhayn & Matthew Mitchell, 2003. "Rewarding Sequential Innovators: Prizes, Patents and Buyouts," Levine's Working Paper Archive 618897000000000682, David K. Levine.
    10. 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.
    11. Nisvan Erkal & Suzanne Scotchmer, 2008. "Scarcity of Ideas and Options to Invest in R&D," Department of Economics - Working Papers Series 1035, The University of Melbourne.
    12. 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.
    13. 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.
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