Scarcity of Ideas and Options to Invest in R&D

Nisvan Erkal () and Suzanne Scotchmer

No 1035, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We consider a model of the innovative environment where there is a distinction between ideas for R&D investments and the investments themselves. We investigate the optimal reward policy and how it depends on whether ideas are scarce or obvious. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce." We then explore how rewards should be structured when the value of an innovation comes from its applications, and ideas for the innovation may be more or less scarce than ideas for the applications.

Keywords: Ideas; patents; intellectual property, innovation; options; nonobviousness (search for similar items in EconPapers)
JEL-codes: O34 K00 L00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino, nep-ipr and nep-law
Date: 2008
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