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Scarcity of Ideas and Options to Invest in R&D

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  • Nisvan Erkal
  • Suzanne Scotchmer

Abstract

We consider a model of the innovative environment where there is a distinction between ideas for R&D investments and the investments themselves. We investigate the optimal reward policy and how it depends on whether ideas are scarce or obvious. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce." We then explore how rewards should be structured when the value of an innovation comes from its applications, and ideas for the innovation may be more or less scarce than ideas for the applications.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1035.

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Length: 40 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mlb:wpaper:1035

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Related research

Keywords: Ideas; patents; intellectual property; innovation; options; nonobviousness;

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References

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  1. Robert M Hunt, 2003. "Patentability, Industry Structure and Innovation," Levine's Working Paper Archive 618897000000000689, David K. Levine.
  2. Erkal, Nisvan, 2005. "The decision to patent, cumulative innovation, and optimal policy," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 535-562, September.
  3. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer.
  4. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Scotchmer, Suzanne & Erkal, Nisvan, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it," Department of Economics, Working Paper Series qt1295k6gg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Suzanne Scotchmer, 2013. "Patents in the University: Priming the Pump and Crowding Out," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 817-844, 09.

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