Bargaining Over New Ideas: The Distribution of Rents and the Stability of Innovative Firms

Mariagiovanna Baccara and Ronny Razin

Journal of the European Economic Association, 2007, vol. 5, issue 6, 1095-1129

Abstract: We develop a theory of the rent distribution and stability of innovative firms. Our theory is based on a model of bargaining over new ideas. The model accounts for the problem of information leakage, namely, the diffusion of information about new ideas among the agents that participate in the bargaining. Our main results draw a link between the strength of intellectual property rights enforcement and the distribution of rents in firms as well as between the size and organization of firms and their stability. Our theory explains why small firms are advantaged in introducing innovation into the market and why spin-outs tend to emerge from large established firms. (JEL: L1, L2, C7) (c) 2007 by the European Economic Association.

Date: 2007
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