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On the Optimal Value and Protection of a Patent

Author

Listed:
  • Johansson, Per-Olov

    (Dept. of Economics, Stockholm School of Economics)

  • Löfgren, Karl-Gustaf

Abstract

In this note, we analyze the behavior of a firm that has a (stochastic) market power due to a patent. For example, we show how to handle the stock aspects of R&D activities (the accumulation of human capital in a firm). In fact, when the R&D stock enters the survival probability of the firm's market power, we do not have a standard optimal control problem. We show how to handle this complication and its implications for the optimal R&D strategy. We also show how to interpret the current value Hamiltonian in terms of the interrest on expected future present value profits. Finally, drawing on resent results on the dynamic envelope theorem, we provide an interpretation of our results in terms of the question whether the market is biased against risky R&D.

Suggested Citation

  • Johansson, Per-Olov & Löfgren, Karl-Gustaf, 1994. "On the Optimal Value and Protection of a Patent," SSE/EFI Working Paper Series in Economics and Finance 24, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0024
    as

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    More about this item

    Keywords

    Patents; R&D; market power;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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