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Coordination of Inventions and Innovations through patent markets with prices

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    This article examines coordination between inventors and innovators through prices in a market for contracts on patented technology, in a controlled laboratory experiment. Typically, a hierarchical approach is used to analyze such coordination, new technology being exogenous, and risk managed in separate markets. Price signals and search patterns are compared for three institutional mechanisms and two levels of patent validity in a 3 x 2 experimental design. “Willingness to search” in a technology map of 9 “technology areas”, each with private and uncertain values for agents, are used to characterize and differentiate institutional behavior with respect to investment decisions in new technology. The results indicate that coordination and that the willingness to search out the most valuable technology differs sharply between the mechanisms; low patent validity also results in poor coordination. Policy implications suggest facilitating a market in tradable contracts on patents is needed. This may entail lowering risk in using patent “assets” (access to quality patents and enforcements for SMEs) and new forms of legal associations for IP intensive firms.

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    File URL: http://ratio.se/app/uploads/2015/11/eu_coordination_inventions_innovations_patents_260.pdf
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    Paper provided by The Ratio Institute in its series Ratio Working Papers with number 260.

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    Length: 20 pages
    Date of creation: 27 Nov 2015
    Handle: RePEc:hhs:ratioi:0260
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    The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

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    1. Ullberg, Eskil, 2010. "FROM PERSONAL TO IMPERSONAL EXCHANGE IN IDEAS: An Experimental Study of Patent Markets with Transparent Prices," Working Paper Series in Economics and Institutions of Innovation 230, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    3. Robinson, Joan, 1977. "What Are the Questions?," Journal of Economic Literature, American Economic Association, vol. 15(4), pages 1318-1339, December.
    4. 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.
    5. Eskil Ullberg, 2010. "The Problem of Trading Patents in Organized Markets: A Dynamic Experimental Microeconomic System Model and Informal Price Theory," Working Papers 1016, George Mason University, Interdisciplinary Center for Economic Science.
    6. Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-291, June.
    7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    9. Arrow, Kenneth J, 1986. "Rationality of Self and Others in an Economic System," The Journal of Business, University of Chicago Press, vol. 59(4), pages 385-399, October.
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