IDEAS home Printed from https://ideas.repec.org/p/cla/levarc/814577000000000081.html
   My bibliography  Save this paper

Experimentation, Patents, and Innovation

Author

Listed:
  • Daron Acemoglu
  • Kostas Bimpikis
  • Asuman E. Ozdaglar

Abstract

This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge. Each firm receives a signal on the success probability of a project and decides when to experiment. Successes can be copied. First, we assume that signal qualities are the same. Symmetric equilibria involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous experimentation. Appropriately designed patents implement the optimal allocation. Finally, we discuss the case when signals differ and are private information. (JEL D82, D83, O31, O33, O34)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Daron Acemoglu & Kostas Bimpikis & Asuman E. Ozdaglar, 2009. "Experimentation, Patents, and Innovation," Levine's Working Paper Archive 814577000000000081, David K. Levine.
    • Handle: RePEc:cla:levarc:814577000000000081
    as

    Download full text from publisher

    File URL: http://www.dklevine.com/archive/refs4814577000000000081.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78, National Bureau of Economic Research, Inc.
    2. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August.
    3. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
    4. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 43-61.
    5. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 265-290, October.
    6. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-960, July.
    7. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    8. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
    9. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-680, November.
    10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    11. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, January.
    12. Suzanne Scotchmer, 1999. "On the Optimality of the Patent Renewal System," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 181-196, Summer.
    13. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-1066, October.
    14. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September.
    15. Bulow, Jeremy & Klemperer, Paul, 1994. "Rational Frenzies and Crashes," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 1-23, February.
    16. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    17. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    18. Dasgupta, Partha, 1988. "Patents, Priority and Imitation or, the Economics of Races and Waiting Games," Economic Journal, Royal Economic Society, vol. 98(389), pages 66-80, March.
    19. Kapur, Sandeep, 1995. "Technological Diffusion with Social Learning," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 173-195, June.
    20. Hendricks, Kenneth & Porter, Robert H, 1996. "The Timing and Incidence of Exploratory Drilling on Offshore Wildcat Tracts," American Economic Review, American Economic Association, vol. 86(3), pages 388-407, June.
    21. Kenneth Hendricks & Dan Kovenock, 1989. "Asymmetric Information, Information Externalities, and Efficiency: The Case of Oil Exploration," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 164-182, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cui, Wenyue & Tang, Jie, 2023. "Innovation convergence clubs and their driving factors within urban agglomeration," Economic Modelling, Elsevier, vol. 121(C).
    2. Griffith, Rachel & Lee, Sokbae & Straathof, Bas, 2017. "Recombinant innovation and the boundaries of the firm," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 34-56.
    3. Jie Ning & Volodymyr Babich, 2018. "R&D Investments in the Presence of Knowledge Spillover and Debt Financing: Can Risk Shifting Cure Free Riding?," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 97-112, February.
    4. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.
    5. Wagner, Peter A., 2018. "Who goes first? Strategic delay under information asymmetry," Theoretical Economics, Econometric Society, vol. 13(1), January.
    6. repec:ipg:wpaper:2014-499 is not listed on IDEAS
    7. Kakhbod, Ali & Loginova, Uliana, 2023. "When does introducing verifiable communication choices improve welfare?," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 139-162.
    8. Nikolaus Thumm & Garry Gabison, 2016. "Patent Assertion Entities in Europe: Their impact on innovation and knowledge transfer in ICT markets," JRC Research Reports JRC103321, Joint Research Centre.
    9. Keller, Godfrey & Rady, Sven, 2015. "Breakdowns," Theoretical Economics, Econometric Society, vol. 10(1), January.
    10. Belitz, Heike & Clemens, Marius & von Hirschhausen, Christian & Schmidt-Ehmcke, Jens & Werwatz, Axel & Zloczysti, Petra, 2011. "An indicator for national systems of innovation: Methodology and application to 17 industrialized countries," SFB 649 Discussion Papers 2011-036, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    11. Dragone, Davide & Ziebarth, Nicolas R., 2015. "Economic Development, Novelty Consumption, and Body Weight: Evidence from the East German Transition to Capitalism," IZA Discussion Papers 8967, Institute of Labor Economics (IZA).
    12. B. Zorina Khan, 2008. "Premium Inventions: Patents and Prizes as Incentive Mechanisms in Britain and the United States, 1750-1930," NBER Chapters, in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 205-234, National Bureau of Economic Research, Inc.
    13. Fu, Wentao & Hua, Di & Qian, Xuewen & Sun, Yang, 2022. "Constrained public goods in weighted networks with heterogeneous agents," Economics Letters, Elsevier, vol. 213(C).
    14. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
    15. Alvina Sabah Idrees & Saima Sarwar, 2021. "State effectiveness, property rights and entrepreneurial behaviour as determinants of National Innovation," Australian Economic Papers, Wiley Blackwell, vol. 60(3), pages 392-423, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daron Acemoglu & Ufuk Akcigit, 2006. "State-Dependent Intellectual Property Rights Policy," NBER Working Papers 12775, National Bureau of Economic Research, Inc.
    2. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 315-380, Elsevier.
    3. By Kenneth L. Judd & Karl Schmedders & Şevin Yeltekin, 2012. "Optimal Rules For Patent Races," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 23-52, February.
    4. David Moroz, 2005. "Production of Scientific Knowledge and Radical Uncertainty: The Limits of the Normative Approach in Innovation Economics," European Journal of Law and Economics, Springer, vol. 20(3), pages 305-322, November.
    5. Anja, Breitwieser & Neil, Foster, 2012. "Intellectual property rights, innovation and technology transfer: a survey," MPRA Paper 36094, University Library of Munich, Germany.
    6. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78, National Bureau of Economic Research, Inc.
    7. Encaoua, David & Guellec, Dominique & Martinez, Catalina, 2006. "Patent systems for encouraging innovation: Lessons from economic analysis," Research Policy, Elsevier, vol. 35(9), pages 1423-1440, November.
    8. Alexandre Almeida & Aurora A.C. Teixeira, 2007. "Does Patenting negatively impact on R&D investment?An international panel data assessment," FEP Working Papers 255, Universidade do Porto, Faculdade de Economia do Porto.
    9. Nancy Gallini, 2017. "Do patents work? Thickets, trolls and antibiotic resistance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 893-926, November.
    10. Galasso, Alberto & Mitchell, Matthew & Virag, Gabor, 2018. "A theory of grand innovation prizes," Research Policy, Elsevier, vol. 47(2), pages 343-362.
    11. Doruk Cetemen & Can Urgun & Leeat Yariv, 2023. "Collective Progress: Dynamics of Exit Waves," Journal of Political Economy, University of Chicago Press, vol. 131(9), pages 2402-2450.
    12. Thijssen, J.J.J., 2003. "Investment under uncertainty, market evolution and coalition spillovers in a game theoretic perspective," Other publications TiSEM 672073a6-492e-4621-8d4a-0, Tilburg University, School of Economics and Management.
    13. David Encaoua & Dominique Guellec & Catalina Martínez, 2010. "Sistemas de patentes para fomentar la innovación: Lecciones de análisis económico," Working Papers 1015, Instituto de Políticas y Bienes Públicos (IPP), CSIC.
    14. Langinier, Corinne & Moschini, GianCarlo, 2002. "Economics of Patents: An Overview, The," Staff General Research Papers Archive 2061, Iowa State University, Department of Economics.
    15. Cristiano Antonelli, 2019. "A reappraisal of the Arrovian postulate and the intellectual property regime: user-specific patents," European Journal of Law and Economics, Springer, vol. 47(3), pages 377-388, June.
    16. Carl Shapiro, 2008. "Patent Reform: Aligning Reward and Contribution," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 111-156, National Bureau of Economic Research, Inc.
    17. Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February.
    18. Giacomo A. M. Ponzetto, 2008. "Intellectual property rights and efficient firm organization," Economics Working Papers 1254, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2014.
    19. Heidi L. Williams, 2017. "How Do Patents Affect Research Investments?," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 441-469, September.
    20. de Laat, Eric A. A., 1997. "Patents or prizes: Monopolistic R&D and asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 369-390, May.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cla:levarc:814577000000000081. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David K. Levine (email available below). General contact details of provider: http://www.dklevine.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.