Policy Propositions

A short discussion is presented in terms of empirical propositions (from laboratory experiments presented in Chaps. 2–4) for the performance of patent institutions in social exchange and market exchange in technology (knowledge). In the economic experiments, the institutional learning that has taken place in history (manifested in the principles of the patent system and national and international regulations and administrative rules) is implemented, at a level of principle, in an economic system design focusing on the (social and market) exchange mechanisms with (transparent) prices and dynamic interaction between specialized agents for invention, intermediary investment (Trader), and innovation (Experiment 1), and willingness to search for incentive compatible (socially preferable) technology focuses through price signals (Experiment 2). The results from these partly heuristic experiments (e.g., probing the design institutions and linear contract) and partly nomothetic experiments (e.g., testing the informal price theory and establishing risk-sharing behavior) add to the institutional learning of proper integration of information and mechanisms/rules measured by dynamic performance and management of risk in pricing, taking into account the behavioral properties of the institutions studied. What we can learn from these experimental results (institutional learning) – through the data they generate and hypothesis that can be tested – in terms of implications to economic development policy (institutional and taxation policy) are summarized as propositions. The fundamental policy question touched upon is how to coordinate what the patent system does (given its current principles and practices) with the purpose of the patent system (exchanging human ideas on the use of the forces of natures in a market for the benefit of society as a whole). Policies on national versus international harmonization are discussed with pricing and coordination mechanisms. An important proposition is that the strength of the patent matters for the incentives to both invest in the protected technology and to trade the technology (allocate to highest bidders). Weak patents are almost systematically used for blocking the use of the patented technology, reducing the competition in technology development and use, contrary to the motivation of the patent system which has, as discussed, from its conception been growth in economically useful (i.e., nonmilitary) technology from social and market exchange in technology. The greater information content of these impersonal auctions (compared to personal exchange) generates rich message history (and not only an outcome history) in which strategic behavior of both buyers and sellers can be observed, useful for further institutional design. Market mechanism that allows buyers to independently and simultaneously express the blocking and investment values, yield 100% higher efficiency than sellers posting prices, suggesting that our knowledge of institutional mechanisms may be critical to achieve the purpose of the patent system as a trade system.