Structure of Asymmetric Information and Optimal Patent Length
Posted: 3 Jan 2013
Date Written: December 31, 2012
Theoretical and empirical studies suggest a need for a flexible patent regime of differentiated length and scope for IT industry. This paper intends to analyze how structure of information asymmetry and shape of social welfare affect optimal patent life for specific area such as IT industry. The results show that patent life designed by consumer-friendly social planner ought to be differentiated when privately informed innovator regarding idea or cost efficiency takes unobservable R&D effort. However, uniform patent life is also optimal if idea, cost efficiency and effort are all private information, for instance in IT industry.
Keywords: innovation, patent system, information asymmetry, hidden information, hidden action, differentiated patent lives
JEL Classification: D82, O34
Suggested Citation: Suggested Citation