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Switching from Patents to an Intertemporal Bounty in a Non-Scale Growth Model: Transitional Dynamics and Welfare Evaluation

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  • Lin, Hwan C.

Abstract

The prize system for innovation has been criticized as impractical due to the lack of a workable formula or algorithm to determine the size of prizes. In this paper, a decentralized market mechanism via the intertemporal bounty (IB) system can function to duplicate Pareto optimality. Under this system, any bountiable innovation is placed in the public domain, and the prize of innovation is dynamically amortized in an infinitely time domain as periodic bounties paid to holders of bounty claims. Periodic bounties are calculated using a government-determined bounty rate times observed market sales. Two formulas are derived to calculate “long-run Pareto optimal bounty rate” and “long-run suboptimal bounty rate.” The former can correct monopoly distortions and externalities, while the latter can only address monopoly distortions. They are empirically computable and can serve as an upper bound and the lower bound of the bounty rate. This paper provides a dynamic general-equilibrium analysis of replacing finitely-lived patents with the IB system using either of these two bounty rates. Based on a non-scale growth model calibrated to the US economy, transition paths are worked out to compute welfare gains.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49782.

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Date of creation: 30 Dec 2012
Date of revision: 12 Sep 2013
Handle: RePEc:pra:mprapa:49782

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Related research

Keywords: Patent; Prize; Bounty Claim; Innovation; Growth; Transitional Dynamics;

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References

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  1. Elhanan Helpman, 1992. "Innovation, Imitation, and Intellectual Property Rights," NBER Working Papers 4081, National Bureau of Economic Research, Inc.
  2. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  3. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December.
  4. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
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  8. Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 96005, Stanford University, Department of Economics.
  9. Gerard Llobet & Hugo Hopenhayn & Matthew F. Mitchell, 2000. "Rewarding sequential innovators: prizes, patents and buyouts," Staff Report 273, Federal Reserve Bank of Minneapolis.
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  12. Carmen Matutes & Pierre Regibeau & Katharine Rockett, 1996. "Optimal Patent Design and the Diffusion of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 60-83, Spring.
  13. Heidi L. Williams, 2010. "Intellectual Property Rights and Innovation: Evidence from the Human Genome," NBER Working Papers 16213, National Bureau of Economic Research, Inc.
  14. Grinols, Earl L. & Lin, Hwan C., 2011. "Patent replacement and welfare gains," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1586-1604, September.
  15. Michael Kremer, 1998. "Patent Buyouts: A Mechanism For Encouraging Innovation," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1137-1167, November.
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  17. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  18. Norrbin, S.C., 1993. "The Relation Between Price and Marginal Cost in U.S. Industry: A Contradiction," Working Papers 1993_05_04, Department of Economics, Florida State University.
  19. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
  20. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May.
  21. Eicher, Theo S. & Turnovsky, Stephen J., 2001. "Transitional dynamics in a two-sector non-scale growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 85-113, January.
  22. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
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