A Patent System with a Contingent Delegation Fee under Asymmetric Information

Kim Weonseek () and Koo Bonwoo ()
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Kim Weonseek: Chung-Ang University
Koo Bonwoo: University of Waterloo

The B.E. Journal of Economic Analysis & Policy, 2012, vol. 12, issue 1, 18

Abstract: Under the framework of a two-stage innovation process in which the first-stage innovation is commercialized by multiple firms at the second stage, this study proposes an optimal patent system for efficient commercialization by a lower cost firm when the R&D costs are private information. Under the existing patent system of granting patents sequentially to successful innovators, the commercialization can be achieved by an inefficient firm (called control loss) and duplicative R&D efforts may occur through competitive innovation race. This study shows that the problems of control loss and duplicative R&D efforts can be prevented if the patent office grants a patent with a mandatory contingent delegation fee only to the first innovator. A carefully designed contingent fee function can induce the first innovator to internalize the patent office’s objective function, leading to efficient commercialization by a lower cost firm.

Keywords: patent design; contingent delegation fee; control loss; commercialization (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1515/1935-1682.2702

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