Advanced Search
MyIDEAS: Login to save this paper or follow this series

Experimentation, Patents, and Innovation

Contents:

Author Info

  • Daron Acemoglu
  • Kostas Bimpikis
  • Asuman Ozdaglar

Abstract

This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents may improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge across firms. Each firm receives a private signal on the success probability of one of many potential research projects and decides when and which project to implement. A successful innovation can be copied by other firms. Symmetric equilibria (where actions do not depend on the identity of the firm) always involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous rather than staggered experimentation. The social cost of insufficient experimentation can be arbitrarily large. Appropriately-designed patents can implement the socially optimal allocation (in all equilibria). In contrast to patents, subsidies to experimentation, research, or innovation cannot typically achieve this objective. We also show that when signal quality differs across firms, the equilibrium may involve a nonmonotonicity, whereby players with stronger signals may experiment after those with weaker signals. We show that in this more general environment patents again encourage experimentation and reduce delays.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w14408.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14408.

as in new window
Length:
Date of creation: Oct 2008
Date of revision:
Publication status: published as Daron Acemoglu & Kostas Bimpikis & Asuman Ozdaglar, 2011. "Experimentation, Patents, and Innovation," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 37-77, February.
Handle: RePEc:nbr:nberwo:14408

Note: CF
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Kenneth Hendricks & Dan Kovenock, 1989. "Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 20(2), pages 164-182, Summer.
  2. Bulow, Jeremy I & Klemperer, Paul, 1991. "Rational Frenzies and Crashes," CEPR Discussion Papers, C.E.P.R. Discussion Papers 593, C.E.P.R. Discussion Papers.
  3. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 1171-1214, September.
  4. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 872-90, September.
  5. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 392, C.E.P.R. Discussion Papers.
  6. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 20(2), pages 265-90, October.
  7. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(5), pages 1039-66, October.
  8. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, Elsevier, vol. 25(1), pages 21-41, August.
  9. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, Econometric Society, vol. 67(2), pages 349-374, March.
  10. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, National Bureau of Economic Research, Inc, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  11. Kapur, Sandeep, 1995. "Technological Diffusion with Social Learning," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 173-95, June.
  12. Cripps, Martin William & Keller, Godfrey & Rady, Sven, 2003. "Strategic Experimentation with Exponential Bandits," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3814, C.E.P.R. Discussion Papers.
  13. Gilbert, R. & Shapiro, C., 1988. "Optimal Patent Length And Breadth," Papers, Princeton, Woodrow Wilson School - Discussion Paper 28, Princeton, Woodrow Wilson School - Discussion Paper.
  14. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 943-60, July.
  15. Nancy Gallini and Suzanne Scotchmer., 2001. "Intellectual Property: When Is It the Best Incentive System?," Economics Working Papers, University of California at Berkeley E01-303, University of California at Berkeley.
  16. Suzanne Scotchmer, 1999. "On the Optimality of the Patent Renewal System," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 30(2), pages 181-196, Summer.
  17. Hendricks, Kenneth & Weiss, Andrew & Wilson, Charles, 1987. "The War of Attrition in Continuous Time with Complete Information," Working Papers, C.V. Starr Center for Applied Economics, New York University 87-03, C.V. Starr Center for Applied Economics, New York University.
  18. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Markus Poschke & Alain Gabler, 2011. "Growth through Experimentation," 2011 Meeting Papers, Society for Economic Dynamics 643, Society for Economic Dynamics.
  2. Godfrey Keller & Sven Rady, 2013. "Breakdowns," Levine's Working Paper Archive, David K. Levine 786969000000000635, David K. Levine.
  3. Frederic Teulon, 2014. "Actualité des analyses de Joseph Schumpeter," Working Papers, Department of Research, Ipag Business School 2014-499, Department of Research, Ipag Business School.
  4. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
  5. B. Zorina Khan, 2008. "Premium Inventions: Patents and Prizes as Incentive Mechanisms in Britain and the United States, 1750-1930," NBER Chapters, National Bureau of Economic Research, Inc, in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 205-234 National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14408. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.