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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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File URL: http://eprints.lse.ac.uk/19315/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19315.

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Length: 37 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:ehl:lserod:19315

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

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References

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Citations

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Cited by:
  1. Sergei Guriev & Sudipto Bhattacharya, 2008. "Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes," FMG Discussion Papers, Financial Markets Group dp618, Financial Markets Group.
  2. Guido Friebel & Sergei Guriev, 2004. "Earnings Manipilation and Incentives in Firms," Working Papers w0055, Center for Economic and Financial Research (CEFIR), revised Oct 2005.
  3. Sudipto Bhattacharya & Sergei Guriev, 2005. "Patents vs trade secrets: knowledge licensing and spillover," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 444, London School of Economics and Political Science, LSE Library.
  4. 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.
  5. Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2009. "Contracting and Ideas Disclosure in the Innovation Process," IDEI Working Papers 567, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Козырев А.Н. & Неволин И. Ð’., 2013. "Применение Алгоритма Решения Задачи Об Оптимальном Распределении Ресурсов К Проблеме Назначения Цены За ИсÐ," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 49(3), pages 57-68, июль.
  7. Trommetter, M., 2007. "Flexibility in the implementation of intellectual property rights in agricultural biotechnology," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 200708, Grenoble Applied Economics Laboratory (GAEL).
  8. 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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