AltInst: Minimum innovation size for patents

"A Patentability Requirement for Sequential Innovation"
      Rand Journal of Economics, Vol. 29, No. 4, 1998

      BY: TED O'DONOGHUE
              Cornell University
              Department of Economics

 Contact: TED O'DONOGHUE
   Email: Mailto:edo1@cornell.edu
  Postal: Cornell University
           Department of Economics
           Uris Hall
           Ithaca, NY 14853 USA
   Phone: (607)255-6287
     Fax: (607)255-2818

ABSTRACT:
 This article investigates patent protection for a long sequence
 of innovations where firms repeatedly supersede each other.
 Incentives for R&D can be insufficient if successful firms earn
 market profit only until competitors achieve something better.
 To correct this problem, patents must provide protection against
 future innovators. This article proposes using a patentability
 requirement--a minimum innovation size required for patents. A
 patentability requirement can stimulate R&D investment and
 increase dynamic efficiency. Intuitively, requiring firms to
 pursue larger innovations prolongs market incumbency because
 larger innovations are harder to achieve, and longer market
 incumbency implies an increased reward to innovation.

JEL Classification: O31, O32, O34

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar FAX: 510-643-8614
140 Warren Hall, UC Berkeley, CA 94720-7360 510-643-1884

[To drop AltInst, tell: majordomo@cco.caltech.edu to: unsubscribe altinst]
Received on Fri Dec 4 20:45:04 1998