Sequential Innovation and Optimal Patent Design
AbstractWe study optimal patent design in a setting with sequential innovation. Firms innovate by undertaking "research" activities to generate new ideas and by undertaking "development" activities to transform these ideas into viable products. Both innovation incentives and the welfare costs of patent monopoly are multidimensional. We characterize optimal patent policy, and in particular, the tradeoff between patent length and patent breadth in this setting. The optimal size of the patent reward is smaller for patents associated with a higher deadweight loss. For a given reward size, a better patent that generates higher social surplus is shorter but broader. The optimal patent length may be finite or infinite.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-447.
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sequential innovation; patent length; patent breadth; incentives; mechanism design;
Find related papers by JEL classification:
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- L00 - Industrial Organization - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-INO-2012-03-21 (Innovation)
- NEP-IPR-2012-03-21 (Intellectual Property Rights)
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