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Optimal Rules for Patent RacesKenneth L. JuddStanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER) Karl H. SchmeddersSwiss Finance Institute; University of Zurich Sevin YeltekinTepper School of Business, Carnegie Mellon University November 1, 2011 Abstract: There are two important rules to patent races: minimal accomplishment necessary to receive the patent and the allocation of the innovation benefits. We study the optimal combination of these rules. A planner, who cannot distinguish between competing firms in a multistage innovation race, chooses the patent rules by maximizing either consumer or social surplus. We show that efficiency cost of prizes is a key consideration. Races are undesirable only when efficiency costs are low, firms are similar, and social surplus is maximized. Otherwise, the optimal policy involves a race of nontrivial duration to spur innovation and filter out inferior innovators.
Number of Pages in PDF File: 41 Keywords: Patent Race, Patent Policy, Stochastic Dynamic Games, Markov-perfect Equilibria JEL Classification: C61, C63, C73, L43, L50 working papers seriesDate posted: March 30, 2011Suggested CitationContact Information
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