Optimal Rules for Patent Races
41 Pages Posted: 30 Mar 2011
Date Written: November 1, 2011
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.
Keywords: Patent Race, Patent Policy, Stochastic Dynamic Games, Markov-perfect Equilibria
JEL Classification: C61, C63, C73, L43, L50
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