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Patent policy, patent pools, and the accumulation of claims in sequential innovation

  • Gastón Llanes

    ()

  • Stefano Trento

    ()

We present a dynamic model where the accumulation of patents generates an increasing number of claims on sequential innovation. We compare innovation activity under three regimes—patents, no-patents, and patent pools—and find that none of them can reach the first best. We find that the first best can be reached through a decentralized tax-subsidy mechanism, by which innovators receive a subsidy when they innovate, and are taxed with subsequent innovations. This finding implies that optimal transfers work in the exact opposite way as traditional patents. Finally, we consider patents of finite duration and determine the optimal patent length. Copyright Springer-Verlag 2012

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File URL: http://hdl.handle.net/10.1007/s00199-010-0591-5
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 50 (2012)
Issue (Month): 3 (August)
Pages: 703-725

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Handle: RePEc:spr:joecth:v:50:y:2012:i:3:p:703-725
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  1. Josh Lerner & Jean Tirole, 2004. "Efficient Patent Pools," American Economic Review, American Economic Association, vol. 94(3), pages 691-711, June.
  2. Michele Boldrin & David K. Levine, 2005. "The economics of ideas and intellectual property," Staff Report 357, Federal Reserve Bank of Minneapolis.
  3. Llanes Gastón & Trento Stefano, 2011. "Anticommons and Optimal Patent Policy in a Model of Sequential Innovation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-27, August.
  4. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Green, J.R. & Scotchmer, S., 1993. "On the Division of Profit in Sequential Innovation," Harvard Institute of Economic Research Working Papers 1638, Harvard - Institute of Economic Research.
  7. Hugo Sonnenschein, 1968. "The Dual of Duopoly Is Complementary Monopoly: or, Two of Cournot's Theories Are One," Journal of Political Economy, University of Chicago Press, vol. 76, pages 316.
  8. Gerard Llobet & Hugo Hopenhayn & Matthew F. Mitchell, 2000. "Rewarding sequential innovators: prizes, patents and buyouts," Staff Report 273, Federal Reserve Bank of Minneapolis.
  9. Steffen Brenner, 2009. "Optimal formation rules for patent pools," Economic Theory, Springer, vol. 40(3), pages 373-388, September.
  10. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
  11. Flavio Menezes & Rohan Pitchford, 2004. "A model of seller holdout," Economic Theory, Springer, vol. 24(2), pages 231-253, August.
  12. V.V. Chari & Larry E. Jones, 2000. "A reconsideration of the problem of social cost: Free riders and monopolists," Economic Theory, Springer, vol. 16(1), pages 1-22.
  13. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer.
  14. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
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