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Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it

  • Nisvan Erkal
  • Suzanne Scotchmer

We investigate rewards to R&D in a model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We characterize the welfare-maximizing reward structure when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14940.

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Date of creation: May 2009
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Handle: RePEc:nbr:nberwo:14940
Note: IO LE
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  1. Choi, J.P., 1991. "Dynamic R & D Competition Under "Hazard Rate" Uncertainty," Discussion Papers 1991_10, Columbia University, Department of Economics.
  2. Gerard Llobet & Hugo Hopenhayn & Matthew F. Mitchell, 2000. "Rewarding sequential innovators: prizes, patents and buyouts," Staff Report 273, Federal Reserve Bank of Minneapolis.
  3. Erkal, Nisvan & Scotchmer, Suzanne, 2007. "Scarcity of Ideas and Options to Invest in R&D," Competition Policy Center, Working Paper Series qt4s01d7md, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  4. Weeds, H., 2000. "Strategic Delay in a Real Optimna Model of R&D Competition," The Warwick Economics Research Paper Series (TWERPS) 576, University of Warwick, Department of Economics.
  5. Nisvan Erkal, 2003. "The Decision to Patent, Cumulative Innovation,and Optimal Policy," Department of Economics - Working Papers Series 877, The University of Melbourne.
  6. Vincenzo Denicolo & Luigi Alberto Franzoni, 2004. "Patents, Secrets, and the First-Inventor Defense," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 517-538, 09.
  7. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
  8. David A. Malueg & Shunichi O. Tsutsui, 1997. "Dynamic R&D Competition with Learning," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 751-772, Winter.
  9. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  10. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
  12. Matthew Mitchell, 2000. "Rewarding Sequential Innovators: Patents Prizes and Buyouts," Econometric Society World Congress 2000 Contributed Papers 1650, Econometric Society.
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