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The Inefficiency of Patents when R&D Projects are Imperfectly Correlated and Imitation Takes Time

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  • Luigi Bonatti
  • Stefano Comino

Abstract

In a realistic framework where the potential innovators'; research lines are imperfectly correlated and imitation takes some time, this paper studies an industry regulated by an authority that can subsidize the firms' R&D expenditures. By comparing the market equilibrium emerging when there is patent protection with the market equilibrium emerging without patents, the paper finds that social welfare is higher in the absence of patents. This result is driven by the fact that, without patents, more than one successful inventor may implement its discovery and enter the market, thus reducing the deadweight loss due to imperfect competition.

Suggested Citation

  • Luigi Bonatti & Stefano Comino, 2011. "The Inefficiency of Patents when R&D Projects are Imperfectly Correlated and Imitation Takes Time," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(2), pages 327-342, June.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201106)167:2_327:tiopwr_2.0.tx_2-p
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    References listed on IDEAS

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    1. Maurer, Stephen M & Scotchmer, Suzanne, 2002. "The Independent Invention Defence in Intellectual Property," Economica, London School of Economics and Political Science, vol. 69(276), pages 535-547, November.
    2. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 611-635.
    3. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    4. Nancy T. Gallini, 2002. "The Economics of Patents: Lessons from Recent U.S. Patent Reform," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 131-154, Spring.
    5. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3, Specia), pages 783-832.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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