Rewarding sequential innovators: prizes, patents and buyouts

Gerard Llobet, Hugo A. Hopenhayn and Matthew Mitchell ()

No 273, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper presents a model of cumulative innovation where firms are heterogeneous in their research ability. We study the optimal reward policy when the quality of the ideas and their subsequent development effort are private information. The optimal assignment of property rights must counterbalance the incentives of current and future innovators. The resulting mechanism resembles a menu of patents that have infinite duration and fixed scope, where the latter increases in the value of the idea. Finally, we provide a way to implement this patent menu by using a simple buyout scheme: The innovator commits at the outset to a price ceiling at which he will sell his rights to a future inventor. By paying a larger fee initially, a higher price ceiling is obtained. Any subsequent innovator must pay this price and purchase its own buyout fee contract.

Keywords: Patents (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino and nep-tid
Date: 2000
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Related works:
Working Paper: Rewarding Sequential Innovators: Prizes, Patents and Buyouts (2000)
Working Paper: Rewarding Sequential Innovators: Prizes, Patents and Buyouts (2003)
Journal Article: Rewarding Sequential Innovators: Prizes, Patents, and Buyouts (2006)
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