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Sequential Innovation and Optimal Patent Design

Author

Listed:
  • Christian Riis
  • Xianwen Shi
Abstract
We study optimal patent design in a setting with sequential innovation. Firms innovate by undertaking "research" activities to generate new ideas and by undertaking "development" activities to transform these ideas into viable products. Both innovation incentives and the welfare costs of patent monopoly are multidimensional. We characterize optimal patent policy, and in particular, the tradeoff between patent length and patent breadth in this setting. The optimal size of the patent reward is smaller for patents associated with a higher deadweight loss. For a given reward size, a better patent that generates higher social surplus is shorter but broader. The optimal patent length may be finite or infinite.

Suggested Citation

  • Christian Riis & Xianwen Shi, 2012. "Sequential Innovation and Optimal Patent Design," Working Papers tecipa-447, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-447
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    sequential innovation; patent length; patent breadth; incentives; mechanism design;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L00 - Industrial Organization - - General - - - General

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