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Shared Rights and Technological Progress

  • Mitchell, Matthew
  • Zhang, Yuzhe

We study how best to reward innovators whose work builds on earlier innovations. Incentives to innovate are obtained by offering innovators the opportunity to profit from their innovations. Since innovations compete, awarding rights to one innovator reduces the value of the rights to prior innovators. We show that the optimal allocation involves shared rights, where more than one innovator is promised a share of profits from a given innovation. We interpret such allocations in three ways: as patents that infringe on prior art, as licensing through an optimally designed ever-growing patent pool, and as randomization through litigation. We contrast the rate of technological progress under the optimal allocation with the outcome if sharing is prohibitively costly, and therefore must be avoided. Avoiding sharing initially slows progress, and leads to a more variable rate of technological progress.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36537.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36537
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  1. Lerner, Josh & Tirole, Jean, 2003. "Efficient Patent Pools," IDEI Working Papers 211, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. 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.
  3. 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).
  4. Hugo Hopenhayn & Matthew Mitchell, 2012. "Rewarding Duopoly Innovators: The Price of Exclusivity," NBER Chapters, in: Standards, Patents and Innovations National Bureau of Economic Research, Inc.
  5. Michael Kremer, 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1137-1167.
  6. Matthew Mitchell, 2000. "Rewarding Sequential Innovators: Patents Prizes and Buyouts," Econometric Society World Congress 2000 Contributed Papers 1650, Econometric Society.
  7. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
  8. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
  9. Choi, J.P., 1997. "Patent Litigation as an Information Transmission Mechanism," Discussion Paper 1997-17, Tilburg University, Center for Economic Research.
  10. Ufuk Akcigit & William R. Kerr, 2010. "Growth Through Heterogeneous Innovations," NBER Working Papers 16443, National Bureau of Economic Research, Inc.
  11. Josh Lerner & Marcin Strojwas & Jean Tirole, 2007. "The design of patent pools: the determinants of licensing rules," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 610-625, 09.
  12. Henry, Emeric, 2010. "Promising the right prize," CEPR Discussion Papers 7758, C.E.P.R. Discussion Papers.
  13. 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.
  14. Reiko Aoki & Jin-Li Hu, 1999. "Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 133-160, 03.
  15. Llobet, G. & Hopenhayn, H. & Mitchell, M., 2000. "Rewarding Sequential Innovators: Prizes, Patents and Buyouts," Papers 0012, Centro de Estudios Monetarios Y Financieros-.
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  17. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Michael Kremer, 2000. "Creating Markets for New Vaccines Part II: Design Issues," NBER Working Papers 7717, National Bureau of Economic Research, Inc.
  19. repec:nbr:nberbk:jaff08-1 is not listed on IDEAS
  20. Chou Teyu & Haller Hans, 2007. "The Division of Profit in Sequential Innovation for Probabilistic Patents," Review of Law & Economics, De Gruyter, vol. 3(2), pages 581-609, December.
  21. Shapiro, Carl, 2001. "Antitrust Limits to Patent Settlements," Competition Policy Center, Working Paper Series qt87s5j911, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  22. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
  23. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
  24. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring.
  25. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  26. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
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