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Cumulative Innovation, Sampling and the Hold-Up Problem

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  • Rufus Pollock

Abstract

With cumulative innovation and imperfect information about the value of innovations, intellectual property rights can result in hold-up and therefore it may be better not to have them. Extending the basic cumulative innovation model to include 'sampling' by second-stage firms, we find that the lower the cost of sampling, or the larger the differential between high and low value second-stage innovations, the more likely it is that a regime without intellectual property rights will be preferable. Thus, technological change which reduces the cost of encountering and trialling new 'ideas' implies a reduction in the socially optimal level of rights such as patents and copyright.

Suggested Citation

  • Rufus Pollock, 2006. "Cumulative Innovation, Sampling and the Hold-Up Problem," DRUID Working Papers 06-29, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    • Handle: RePEc:aal:abbswp:06-29
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    References listed on IDEAS

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    1. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    2. Carmen Matutes & Pierre Regibeau & Katharine Rockett, 1996. "Optimal Patent Design and the Diffusion of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 60-83, Spring.
    3. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
    4. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Innovation," NajEcon Working Paper Reviews 321307000000000021, www.najecon.org.
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    Cited by:

    1. Pollock, Rufus, 2006. "Innovation and Imitation with and without Intellectual Property Rights," MPRA Paper 5025, University Library of Munich, Germany, revised 17 Jul 2007.

    More about this item

    Keywords

    Cumulative Innovation; Hold-Up; Sampling; Intellectual Property;

    JEL classification:

    • K3 - Law and Economics - - Other Substantive Areas of Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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