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Incentivizing Innovation: Adding to the Tool Kit

In: Innovation Policy and the Economy, Volume 10

  • Michael Kremer
  • Heidi Williams

Intellectual property rights (IPR) create incentives for research but impose static efficiency losses and other costs. In this essay, we discuss recent proposals of other mechanisms for rewarding innovation and argue that incremental experimentation with mechanisms that supplement rather than replace IPR can help to test and refine these mechanisms without undermining existing institutions. Prizes, such as those recently offered by the X‐Prize Foundation, have been successful in spurring research but have typically targeted demonstration projects rather than innovations capable of being used at scale. To spur the creation of products for widespread use, the design of prizes could be usefully extended by conditioning rewards on a market test, as in the recent $1.5 billion pilot Advance Market Commitment (AMC) for a pneumococcus vaccine.

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This chapter was published in:
  • Josh Lerner & Scott Stern, 2010. "Innovation Policy and the Economy, Volume 10," NBER Books, National Bureau of Economic Research, Inc, number lern09-1, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11763.
    Handle: RePEc:nbr:nberch:11763
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.orgEmail:


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    1. Daron Acemoglu & Joshua Linn, 2003. "Market Size in Innovation: Theory and Evidence From the Pharmaceutical Industry," NBER Working Papers 10038, National Bureau of Economic Research, Inc.
    2. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
    3. V.V. Chari & Mikhail Golosov & Aleh Tsyviski, 2009. "Prizes and patents: using market signals to provide incentives for innovations," Working Papers 673, Federal Reserve Bank of Minneapolis.
    4. Fiona E. Murray & Scott Stern, 2007. "Do Formal Intellectual Property Rights Hinder the Free Flow of Scientific Knowledge?: An Empirical Test of the Anti-Commons Hypothesis," NBER Chapters, in: Academic Science and Entrepreneurship: Dual Engines of Growth National Bureau of Economic Research, Inc.
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