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Patent protection and R&D subsidy under asymmetric information

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  • Jeon, Haejun

Abstract

We examine a technology licensing under asymmetric information and discuss the effects of R&D policies. In particular, we investigate an innovator's investment strategy and the efficiency of policies from a dynamics perspective. We show that perfect patent protection is optimal under symmetric information, whereas this is not so if the licensor has private information. Furthermore, we show that social welfare under asymmetric information is higher than that under symmetric information for most patent protection levels, yet the latter dominates the former in the presence of an optimal policy for each regime. An R&D subsidy is found suboptimal under symmetric information, whereas it can be optimal given information asymmetry. This allows us to derive a combination of patent protection and R&D subsidy that yields the first-best results under asymmetric information in multiple industries simultaneously.

Suggested Citation

  • Jeon, Haejun, 2019. "Patent protection and R&D subsidy under asymmetric information," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 332-354.
    • Handle: RePEc:eee:reveco:v:62:y:2019:i:c:p:332-354
    DOI: 10.1016/j.iref.2019.04.001
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    2. Xia, Dan & Wang, Xiang-Qian, 2021. "The synergetic impact of environmental and innovation information disclosure on corporate financial performance: An empirical study based on China coal listed companies," Technovation, Elsevier, vol. 100(C).

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    More about this item

    Keywords

    Patent protection; R&D subsidy; Licensing; Vertical separation; Asymmetric information; Real options;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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