Knowledge Disclosure, Patents and Optimal Organization of Research and Development

39 Pages Posted: 16 Jul 2008

See all articles by Sudipto Bhattacharya

Sudipto Bhattacharya

London School of Economics; Centre for Economic Policy Research (CEPR)

Sergei Guriev

Sciences Po; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2004

Abstract

We develop a model of two-stage cumulative research and development (R&D), in which one Research Unit (RU) with an innovative idea bargains to license her nonverifiable interim knowledge exclusively to one of two competing Development Units (DUs) via one of two alternative modes: an Open sale after patenting this interim knowledge, or a Closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU's post-invention revenues. Both models lead to partial leakage of RU's knowledge from it's description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. We find that higher levels of interim knowledge are more likely to be licensed via closed sales. If the extent of leakage is lower, more RUs choose open sales, generating a non-monotonic relationship between the strength of Intellectual Property Rights (IPR) and aggregate R&D expenditures. We also develop a rationale for the ex ante acquisition of control rights over the RU by a DU, rooted in the RU's incentives to create knowledge under alternative modes of sale thereof, and her wealth constraint in ex interim bargaining.

JEL Classification: D23, O32, O34

Suggested Citation

Bhattacharya, Sudipto and Guriev, Sergei, Knowledge Disclosure, Patents and Optimal Organization of Research and Development (September 2004). LSE STICERD Research Paper No. TE478. Available at SSRN: https://ssrn.com/abstract=1161001

Sudipto Bhattacharya (Contact Author)

London School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
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Sergei Guriev

Sciences Po ( email )

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Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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