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OPTIMAL RULES FOR PATENT RACES *
Author(s) -
Judd By Kenneth L.,
Schmedders Karl,
Yeltekin Şevin
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2011.00670.x
Subject(s) - social planner , key (lock) , planner , microeconomics , economic surplus , race (biology) , economics , filter (signal processing) , industrial organization , business , computer science , market economy , welfare , botany , computer security , computer vision , biology , programming language
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.