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Knowledge Disclosure, Patents and Optimal Organization of Research and Development

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  • Sudipto Bhattacharya
  • Sergei Guriev

Abstract

We develop a model of two-stage cumulative research and development (R&D), in which one Research Unit (RU) with an innovative idea bargains to license her nonverifiable interim knowledge exclusively to one of two competing Development Units (DUs) via one of two alternative modes: an Open sale after patenting this interim knowledge, or a Closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU's post-invention revenues. Both models lead to partial leakage of RU's knowledge from it's description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. We find that higher levels of interim knowledge are more likely to be licensed via closed sales. If the extent of leakage is lower, more RUs choose open sales, generating a non-monotonic relationship between the strength of Intellectual Property Rights (IPR) and aggregate R&D expenditures. We also develop a rationale for the ex ante acquisition of control rights over the RU by a DU, rooted in the RU's incentives to create knowledge under alternative modes of sale thereof, and her wealth constraint in ex interim bargaining.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number /2004/478.

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Date of creation: Sep 2004
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Handle: RePEc:cep:stitep:/2004/478

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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Keywords: R&D organisation; patents; intellectual property rights;

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Citations

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Cited by:
  1. Friebel, Guido & Guriev, Sergei, 2005. "Earnings Manipulation and Incentives in Firms," CEPR Discussion Papers 4850, C.E.P.R. Discussion Papers.
  2. Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2009. "Contracting and Ideas Disclosure in the Innovation Process," TSE Working Papers 09-053, Toulouse School of Economics (TSE).
  3. Thomas Hellman & Enrico Perotti, 2010. "The Circulation of Ideas in Firms and Markets," Working Papers 2010.47, Fondazione Eni Enrico Mattei.
  4. Bhattacharya, Sudipto & Guriev, Sergei, 2008. "Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes," CEPR Discussion Papers 6927, C.E.P.R. Discussion Papers.
  5. Sudipto Bhattacharya & Sergei Guriev, 2006. "Patents vs. Trade Secrets: Knowledge Licensing and Spillover," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1112-1147, December.
  6. Trommetter, M., 2007. "Flexibility in the implementation of intellectual property rights in agricultural biotechnology," Working Papers 200708, Grenoble Applied Economics Laboratory (GAEL).
  7. Mariagiovanna Baccara & Ronny Razin, 2004. "Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights," Levine's Working Paper Archive 122247000000000194, David K. Levine.

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