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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. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
  2. Hugo Hopenhayn & Gerard Llobet & Matthew Mitchell, 2006. "Rewarding Sequential Innovators: Prizes, Patents, and Buyouts," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1041-1068, December.
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  17. Suzanne Scotchmer, 1999. "On the Optimality of the Patent Renewal System," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 181-196, Summer.
  18. 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.
  19. 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.
  20. Michele Boldrin & David K. Levine, 2013. "The Case against Patents," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 3-22, Winter.
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  22. 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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