Cumulative Innovation, Sampling and the Hold-Up Problem
With cumulative innovation and imperfect information about the value of innovations, intellectual property rights can result in hold-up and therefore it may be better not to have them. Extending the basic cumulative innovation model to include `sampling' by second-stage firms, we find that the lower the cost of sampling, or the larger the differential between high and low value second-stage innovations, the more likely it is that a regime without intellectual property rights will be preferable. Thus, technological change which reduces the cost of encountering and trialling new `ideas' implies a reduction in the socially optimal level of rights such as patent and copyright.
|Date of creation:||24 Jan 2006|
|Date of revision:||10 Aug 2007|
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"On the Division of Profit in Sequential Innovation,"
Harvard Institute of Economic Research Working Papers
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