Re: AltInst: Patent Buyouts

On 4/8/99, Dean Brettle wrote:
>> >Quarterly Journal of Economics, Nov. 1998, pp. 1137-1167.
>> >Patent Buyouts: A Mechanism for Encouraging Innovations
>> > by Michael Kremer
>> >... Most patents purchased would be placed in the public
>> >domain, but to induce bidders to reveal their valuations, a few
>> >would be sold to the highest bidder.
>> The idea is to hold an auction for each patent, but then to
>> usually not actually sell most of them, using the auction
>> price to pay the creator.
>
>The problem with the proposed system (as I understand it based on the
>abstract) is that the inventor is *required* to auction off his idea.
>If the inventor thinks that his idea is worth $1M and the market thinks
>it is worth $100K and the inventor is right, he has lost $900K vis-a-vis
>the current system. He would not be paid in proportion to the actual
>value of his innovation to society. An auction system would primarily
>encourage innovative *marketing* instead of real innovation. :-)
>
>Moreover, I think that only actually selling a few of the patents would
>exacerbate the problem. Wouldn't bidders' reduced exposure in such a
>system mean that they would expend less resources trying to determine
>the true value of the innovation?

I agree this is a disadvantage, but I don't see it as a big one.
Individual patents may be mispriced, but the average price should be
about right. There are actually bigger problems with this proposal,
problems described in the paper.

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
after 8/99: Assist. Prof. Economics, George Mason Univ.

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Received on Mon Apr 19 14:07:20 1999