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Scarcity of Ideas and Options to Invest in R&D

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  • Erkal, Nisvan
  • Scotchmer, Suzanne

Abstract

We consider a model of the innovative environment where there is a distinction between ideas for R\&D investments and the investments themselves. We investigate the optimal reward policy and how it depends on whether ideas are scarce or obvious. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce." We then explore how rewards should be structured when the value of an innovation comes from its applications, and ideas for the innovation may be more or less scarce than ideas for the applications.

Suggested Citation

  • Erkal, Nisvan & Scotchmer, Suzanne, 2007. "Scarcity of Ideas and Options to Invest in R&D," Department of Economics, Working Paper Series qt2hq9s5kg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt2hq9s5kg
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    References listed on IDEAS

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    1. Erkal, Nisvan, 2005. "The decision to patent, cumulative innovation, and optimal policy," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 535-562, September.
    2. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
    3. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer.
    4. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, September.
    5. Ted O'Donoghue & Suzanne Scotchmer & Jacques‐François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, March.
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    Cited by:

    1. Nisvan Erkal & Suzanne Scotchmer, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it," NBER Working Papers 14940, National Bureau of Economic Research, Inc.
    2. Gastón Llanes & Stefano Trento, 2012. "Patent policy, patent pools, and the accumulation of claims in sequential innovation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(3), pages 703-725, August.
    3. Suzanne Scotchmer, 2013. "Patents in the University: Priming the Pump and Crowding Out," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 817-844, September.

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    More about this item

    Keywords

    Ideas; patents; intellectual property; innovation; options;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L00 - Industrial Organization - - General - - - General

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