Patent Buy-Outs: A Mechanism for Encouraging Innovation

62 Pages Posted: 19 Jul 2000

See all articles by Michael Kremer

Michael Kremer

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER); Center for Global Development; Harvard University - Harvard Kennedy School (HKS)

Date Written: December 1997

Abstract

In 1839, the French government purchased the patent on the Daguerreotype process and" placed it in the public domain. This paper examines a mechanism under which governments" would use an auction to estimate the private value of patents and then offer to buy out patents at" this private value, times a fixed markup. The markup would correspond to the estimated typical" ratio of the social and private values of inventions -- perhaps two. Most patents purchased would" be placed in the public domain, but in order to induce bidders to reveal their valuations patents would be sold to the highest bidder. Such patent buy-outs could eliminate monopoly" price distortions and incentives for wasteful reverse engineering, while raising private incentives" for original research closer to their social value. However, patent buy-outs are potentially" vulnerable to collusion. Patent buy-outs may be particularly appropriate for pharmaceuticals."

Suggested Citation

Kremer, Michael R., Patent Buy-Outs: A Mechanism for Encouraging Innovation (December 1997). NBER Working Paper No. w6304. Available at SSRN: https://ssrn.com/abstract=226059

Michael R. Kremer (Contact Author)

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