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Prizes and patents: using market signals to provide incentives for innovations

Author

Listed:
  • V. V. Chari
  • Mikhail Golosov
  • Aleh Tsyvinski

Abstract

Innovative activities have public good characteristics in the sense that the cost of producing the innovation is high compared to the cost of producing subsequent units. Moreover, knowledge of how to produce subsequent units is widely known once the innovation has occurred and is, therefore, non-rivalrous. The main question of this paper is whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. The ability of the mechanism designer to exploit such information depends crucially on the ability of the innovator to manipulate market signals. We show that if the innovator cannot manipulate market signals, then the efficient levels of innovation can be implemented without deadweight losses - for example, by using appropriately designed prizes. If the innovator can use bribes, buybacks, or other ways of manipulating market signals, patents are necessary.

Suggested Citation

  • V. V. Chari & Mikhail Golosov & Aleh Tsyvinski, 2009. "Prizes and patents: using market signals to provide incentives for innovations," Working Papers 673, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:673
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Stefanie Stantcheva, 2015. "Optimal Taxation and R&D Policies," 2015 Meeting Papers 1533, Society for Economic Dynamics.
    2. Mitchell, Matthew & Zhang, Yuzhe, 2012. "Shared Rights and Technological Progress," MPRA Paper 36537, University Library of Munich, Germany.
    3. Michael Kremer & Heidi Williams, 2010. "Incentivizing Innovation: Adding to the Tool Kit," NBER Chapters,in: Innovation Policy and the Economy, Volume 10, pages 1-17 National Bureau of Economic Research, Inc.
    4. Petra Moser & Tom Nicholas, 2013. "Prizes, Publicity and Patents: Non-Monetary Awards as a Mechanism to Encourage Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 763-788, September.
    5. Galasso, Alberto & Mitchell, Matthew & Virag, Gabor, 2016. "Market outcomes and dynamic patent buyouts," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 207-243.
    6. repec:eee:respol:v:47:y:2018:i:2:p:343-362 is not listed on IDEAS
    7. repec:eee:exehis:v:64:y:2017:i:c:p:21-36 is not listed on IDEAS
    8. Brueggemann, Julia & Meub, Lukas, 2015. "Experimental evidence on the effects of innovation contests," Center for European, Governance and Economic Development Research Discussion Papers 251, University of Goettingen, Department of Economics.
    9. Acemoglu, Daron, 2012. "Introduction to economic growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 545-550.
    10. repec:eee:iepoli:v:39:y:2017:i:c:p:72-83 is not listed on IDEAS

    More about this item

    Keywords

    Public goods ; Patents;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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