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Experimentation, Patents, and Innovation

Author

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  • 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
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    References listed on IDEAS

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    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.
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    3. Reinganum, Jennifer F., 1981. "Dynamic games of innovation," Journal of Economic Theory, Elsevier, vol. 25(1), pages 21-41, August.
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    5. Godfrey Keller & Sven Rady & Martin Cripps, 2005. "Strategic Experimentation with Exponential Bandits," Econometrica, Econometric Society, vol. 73(1), pages 39-68, January.
    6. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    7. 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.
    8. 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.
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    13. 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.
    14. 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.
    15. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    16. 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.
    17. 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.
    18. Kapur, Sandeep, 1995. "Technological Diffusion with Social Learning," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 173-195, June.
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    Citations

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    Cited by:

    1. 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.
    2. Heidhues, Paul & Rady, Sven & Strack, Philipp, 2015. "Strategic experimentation with private payoffs," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 531-551.
    3. repec:ipg:wpaper:2014-499 is not listed on IDEAS
    4. Nikolaus Thumm & Garry Gabison, 2016. "Patent Assertion Entities in Europe: Their impact on innovation and knowledge transfer in ICT markets," JRC Working Papers JRC103321, Joint Research Centre (Seville site).
    5. Keller, Godfrey & Rady, Sven, 2015. "Breakdowns," Theoretical Economics, Econometric Society, vol. 10(1), January.
    6. 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 for the Study of Labor (IZA).
    7. 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.
    8. 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.

    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

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