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)
Acemoglu, Daron, Kostas Bimpikis, and Asuman Ozdaglar.
"Experimentation, Patents, and Innovation."
American Economic Journal: Microeconomics,
Asymmetric and Private Information
Search; Learning; Information and Knowledge; Communication; Belief
Innovation and Invention: Processes and Incentives
Technological Change: Choices and Consequences; Diffusion Processes
Intellectual Property Rights