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The Circulation of Ideas: Firms Versus Markets

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  • Hellmann, Thomas F
  • Perotti, Enrico C

Abstract

We describe new ideas as incomplete concepts for which the innovator needs feedback from agents with complementary skills. Once shared, ideas may be stolen. We compare how different contractual environments support invention and implementation. Markets, as open exchange systems, are good for circulation and thus elaboration, but may fail to reward idea generation. Firms, as controlled idea exchange systems, can reward idea generation but can do so only by restricting their circulation. This identifies a basic trade-off between protecting the rights of invention and the best implementation of ideas. An environment that allows ideas to cross firm boundaries enhances the rate of innovation and creates a symbiotic relationship between markets and firms.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5469.

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Date of creation: Jan 2006
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Handle: RePEc:cpr:ceprdp:5469

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Keywords: firms; ideas; innovation;

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Citations

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Cited by:
  1. Philippe Aghion & Mathias Dewatripont & Jeremy C. Stein, 2005. "Academic Freedom, Private-Sector Focus, and the Process of Innovation," NBER Working Papers 11542, National Bureau of Economic Research, Inc.
  2. Kräkel, Matthias & Sliwka, Dirk, 2006. "Should You Allow Your Agent to Become Your Competitor? On Non-Compete Agreements in Employment Contracts," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 99, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Andres Almazan & Javier Suarez & Sheridan Titman, 2007. "Firms' Stakeholders and the Costs of Transparency," NBER Working Papers 13647, National Bureau of Economic Research, Inc.
  4. Alex Gaudeul, 2005. "Public provision of a private good: What is the point of the BSD license?," Industrial Organization 0511002, EconWPA.
  5. Thomas F. Hellmann & Enrico C. Perotti, 2011. "The Circulation of Ideas in Firms and Markets," NBER Working Papers 16943, National Bureau of Economic Research, Inc.
  6. Hellmann, Thomas, 2007. "The role of patents for bridging the science to market gap," Journal of Economic Behavior & Organization, Elsevier, vol. 63(4), pages 624-647, August.
  7. Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2009. "Contracting for an Innovation under Bilateral Asymmetric Information," IDEI Working Papers 448, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Stein, Jeremy, 2008. "Conversations among Competitors," Scholarly Articles 2799052, Harvard University Department of Economics.
  9. Peter Thompson & Steven Klepper, 2009. "Disagreements and Intra-Industry Spinoffs," Working Papers 0907, Florida International University, Department of Economics.

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