Patents, Research Exemption, and the Incentive for Sequential Innovation
AbstractWe develop a dynamic duopoly model of R&D competition to improve the quality of a final good. The innovation process is sequential and cumulative, and takes place alongside production in an infinite-horizon setting. In this context we study the R&D incentive impacts resulting from a ï¾“research exemptionï¾” or ï¾“experimental useï¾” provision. We specify and solve the innovation and production model under two distinct intellectual property right (IPR) regimes, essentially a patent system with and without a research exemption. The model applies closely to the question of the optimal mode of IPR protection for plants, where traditional plant breederï¾’s rights allow for a well-defined research exemption, whereas standard utility patents do not. We characterize the properties of the relevant Markov perfect equilibria and investigate the profit and welfare effects of the research exemption. We find that firms, ex ante, always prefer full patent protection. The welfare ranking of the two IPR regimes, on the other hand, depends on the relative magnitudes of the costs of initial innovation and improvements. In particular, a research exemption is most likely to provide inadequate R&D incentives when there is a large cost to establish the initial research program.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12598.
Date of creation: 01 Jan 2008
Date of revision:
Publication status: Published in Journal of Economics & Management Strategy 2008, vol. 17, pp. 379-412
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Web page: http://www.econ.iastate.edu
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Other versions of this item:
- GianCarlo Moschini & Oleg Yerokhin, 2008. "Patents, Research Exemption, and the Incentive for Sequential Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 379-412, 06.
- NEP-ALL-2006-04-29 (All new papers)
- NEP-COM-2006-04-29 (Industrial Competition)
- NEP-INO-2006-04-29 (Innovation)
- NEP-MIC-2006-04-29 (Microeconomics)
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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