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Intellectual Property as a Carrot for Innovators Using Game Theory to Show the Limits of the Argument

Author

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  • Christoph Engel

    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

Policymakers all over the world claim: no innovation without protection. For more than a century, critics have objected that the case for intellectual property is far from clear. This paper uses a game theoretic model to organise the debate. It is possible to model innovation as a prisoner's dilemma between potential innovators, and to interpret intellectual property as a tool for making cooperation the equilibrium. However, this model rests on assumptions about cost and benefit that are unlikely to hold, or have even been shown to be wrong, in many empirically relevant situations. Moreover, even if the problem is indeed a prisoner's dilemma, in many situations intellectual property is an inappropriate cure. It sets incentives to race to be the first, or the last, to innovate, as the case may be. In equilibrium, the firms would have to randomise between investment and non-investment, which is unlikely to work out in practice. Frequently, firms would have to invent cooperatively, which proves difficult in larger industries.

Suggested Citation

  • Christoph Engel, 2007. "Intellectual Property as a Carrot for Innovators Using Game Theory to Show the Limits of the Argument," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2007_4, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2007_4
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    File URL: http://www.coll.mpg.de/pdf_dat/2007_04online.pdf
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    More about this item

    Keywords

    intellectual property; game theory;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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