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American Economic Journal: Microeconomics: Vol. 3 No. 1 (February 2011)

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Experimentation, Patents, and Innovation

Article Citation

Acemoglu, Daron, Kostas Bimpikis, and Asuman Ozdaglar. 2011. "Experimentation, Patents, and Innovation." American Economic Journal: Microeconomics, 3(1): 37-77.

DOI: 10.1257/mic.3.1.37

Abstract

This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge. Each firm receives a signal on the success probability of a project and decides when to experiment. Successes can be copied. First, we assume that signal qualities are the same. Symmetric equilibria involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous experimentation. Appropriately designed patents implement the optimal allocation. Finally, we discuss the case when signals differ and are private information. (JEL D82, D83, O31, O33, O34)

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Authors

Acemoglu, Daron (MIT)
Bimpikis, Kostas (MIT)
Ozdaglar, Asuman (MIT)

JEL Classifications

D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
O31: Innovation and Invention: Processes and Incentives
O33: Technological Change: Choices and Consequences; Diffusion Processes
O34: Intellectual Property Rights

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American Economic Journal: Microeconomics


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