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Experimentation, Patents, and Innovation

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  • Daron Acemoglu
  • Kostas Bimpikis
  • Asuman E. Ozdaglar

Abstract

This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge. Each firm receives a signal on the success probability of a project and decides when to experiment. Successes can be copied. First, we assume that signal qualities are the same. Symmetric equilibria involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous experimentation. Appropriately designed patents implement the optimal allocation. Finally, we discuss the case when signals differ and are private information. (JEL D82, D83, O31, O33, O34)

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000081.

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Date of creation: 15 Jan 2009
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Handle: RePEc:cla:levarc:814577000000000081

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  1. Jeremy Bulow & Paul Klemperer, 1991. "Rational Frenzies and Crashes," NBER Technical Working Papers 0112, National Bureau of Economic Research, Inc.
  2. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-80, November.
  3. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 392, C.E.P.R. Discussion Papers.
  4. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78 National Bureau of Economic Research, Inc.
  5. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 39-68, 01.
  6. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(5), pages 1039-66, October.
  7. Gilbert, R. & Shapiro, C., 1988. "Optimal Patent Length And Breadth," Papers, Princeton, Woodrow Wilson School - Discussion Paper 28, Princeton, Woodrow Wilson School - Discussion Paper.
  8. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 349-374, March.
  9. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 943-60, July.
  10. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 872-90, September.
  11. Reinganum, Jennifer F., . "Dynamic Games of Innovation," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 287, California Institute of Technology, Division of the Humanities and Social Sciences.
  12. Kapur, Sandeep, 1995. "Technological Diffusion with Social Learning," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 173-95, June.
  13. Kenneth Hendricks & Dan Kovenock, 1989. "Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 164-182, Summer.
  14. Simon, Leo K. & Stinchcombe, Maxwell B., 1987. "Extensive From Games in Continuous Time: Pure Strategies," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt03x115sh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  15. Suzanne Scotchmer, 1999. "On the Optimality of the Patent Renewal System," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 181-196, Summer.
  16. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 20(2), pages 265-90, October.
  17. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  18. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
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Cited by:
  1. Keller, Godfrey & Rady, Sven, 2012. "Breakdowns," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 396, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Frederic Teulon, 2014. "Actualité des analyses de Joseph Schumpeter," Working Papers, Department of Research, Ipag Business School 2014-499, Department of Research, Ipag Business School.
  3. Markus Poschke & Alain Gabler, 2011. "Growth through Experimentation," 2011 Meeting Papers 643, Society for Economic Dynamics.
  4. B. Zorina Khan, 2008. "Premium Inventions: Patents and Prizes as Incentive Mechanisms in Britain and the United States, 1750-1930," NBER Chapters, in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 205-234 National Bureau of Economic Research, Inc.
  5. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.

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