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A Patent System with a Contingent Delegation Fee under Asymmetric Information

  • Kim Weonseek


    (Chung-Ang University)

  • Koo Bonwoo


    (University of Waterloo)

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    Under the framework of a two-stage innovation process in which the first-stage innovation is commercialized by multiple firms at the second stage, this study proposes an optimal patent system for efficient commercialization by a lower cost firm when the R&D costs are private information. Under the existing patent system of granting patents sequentially to successful innovators, the commercialization can be achieved by an inefficient firm (called control loss) and duplicative R&D efforts may occur through competitive innovation race. This study shows that the problems of control loss and duplicative R&D efforts can be prevented if the patent office grants a patent with a mandatory contingent delegation fee only to the first innovator. A carefully designed contingent fee function can induce the first innovator to internalize the patent office’s objective function, leading to efficient commercialization by a lower cost firm.

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    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 12 (2012)
    Issue (Month): 1 (May)
    Pages: 1-18

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    Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:21
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