Prices versus Prizes: Patents, Public Policy, and the Market for Inventions
66 Pages Posted: 28 Aug 2014 Last revised: 11 Sep 2014
Date Written: September 1, 2014
I consider whether government prizes should replace market prices for inventions. The America COMPETES Reauthorization Act of 2010 establishes a framework for government prizes. I examine how antitrust and public policy towards patents should take into account the economic benefits of the market for inventions. I consider the limitations of a prize system in terms of economic efficiency. I find that the deadweight welfare loss argument for replacing market prices with government prizes is flawed. I show how prices in the market for inventions provide state-contingent signals that guide invention, commercialization, innovation, financing, and complementary inventions. I examine how prices in the market for inventions provide indicators of technological change. I conclude that replacing market prices with government prizes would harm invention, innovation and economic growth.
Keywords: Invention, R&D, competition, innovation, prices, prizes
JEL Classification: D40, O31, L10
Suggested Citation: Suggested Citation