TY  - JOUR
AU  - Acemoglu,Daron
AU  - Bimpikis,Kostas
AU  - Ozdaglar,Asuman
TI  - Experimentation, Patents, and Innovation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14408
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14408
L1  - http://www.nber.org/papers/w14408.pdf
N1  - Author contact info:
Daron Acemoglu
Department of Economics
MIT, E52-380B
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-1927
Fax: 617/253-1330
E-Mail: daron@mit.edu

Kostas Bimpikis
MIT - Sloan School of Management
50 Memorial Drive
Cambridge, MA 02142
E-Mail: kostasb@MIT.EDU

Asuman Ozdaglar
Dept of Electrical Engineering
and Computer Science
Massachusetts Institute of Technology
77 Massachusetts Ave, E40-130
Cambridge, MA 02139
E-Mail: asuman@mit.edu
AB  - This paper studies a simple model of experimentation and innovation. Our analysis suggests that patents may improve the allocation of resources by encouraging rapid experimentation and efficient ex post transfer of knowledge across firms. Each firm receives a private signal on the success probability of one of many potential research projects and decides when and which project to implement. A successful innovation can be copied by other firms. Symmetric equilibria (where actions do not depend on the identity of the firm) always involve delayed and staggered experimentation, whereas the optimal allocation never involves delays and may involve simultaneous rather than staggered experimentation. The social cost of insufficient experimentation can be arbitrarily large. Appropriately-designed patents can implement the socially optimal allocation (in all equilibria). In contrast to patents, subsidies to experimentation, research, or innovation cannot typically achieve this objective. We also show that when signal quality differs across firms, the equilibrium may involve a nonmonotonicity, whereby players with stronger signals may experiment after those with weaker signals. We show that in this more general environment patents again encourage experimentation and reduce delays.
ER  -