Prizes and patents: using market signals to provide incentives for innovations

Varadarajan Chari, Mikhail Golosov and Aleh Tsyvinski

No 673, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Innovative activities have public good characteristics in the sense that the cost of producing the innovation is high compared to the cost of producing subsequent units. Moreover, knowledge of how to produce subsequent units is widely known once the innovation has occurred and is, therefore, non-rivalrous. The main question of this paper is whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. The ability of the mechanism designer to exploit such information depends crucially on the ability of the innovator to manipulate market signals. We show that if the innovator cannot manipulate market signals, then the efficient levels of innovation can be implemented without deadweight losses - for example, by using appropriately designed prizes. If the innovator can use bribes, buybacks, or other ways of manipulating market signals, patents are necessary.

Keywords: Public goods; Patents (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cta, nep-ino, nep-ipr, nep-pr~ and nep-tid
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Prizes and patents: Using market signals to provide incentives for innovations (2012)
Working Paper: Prizes and Patents: Using Market Signals to Provide Incentives for Innovations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:673

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