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Cumulative Innovation, Experimentation and the Hold-Up Problem

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  • Pollock, R.

Abstract

Extending the basic model of two-stage cumulative innovation with asymmetric information to include `experimentation' by second-stage rms, we nd that the costs of a strong (versus weak) intellectual property (IP) regime may be substantially increased. In addition, these costs increase as experimentation becomes cheaper and as the differential between high and low value second-stage innovations grows, with the result that a weak IP regime is more likely to be optimal. Thus, technological change which reduces the cost of encountering and trialling new `ideas' implies a reduction in the socially optimal level of IP rights such as patent and copyright.

Suggested Citation

  • Pollock, R., 2008. "Cumulative Innovation, Experimentation and the Hold-Up Problem," Cambridge Working Papers in Economics 0817, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0817
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    References listed on IDEAS

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    1. 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.
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    3. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    4. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Innovation," NajEcon Working Paper Reviews 321307000000000021, www.najecon.org.
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    6. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
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    Cited by:

    1. Pollock, R., 2009. "The Economics of Public Sector Information," Cambridge Working Papers in Economics 0920, Faculty of Economics, University of Cambridge.

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    Keywords

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    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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