Economics Bibliography: Primarily Innovation and IP Oriented

This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model-that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck-are both supported by the data.

Is more intense product market competition and imitation good or bad for growth? This question is addressed in the context of an endogenous growth model with "step-by-step" innovations, in which technological laggards must first catch up with the leading-edge technology before battling for technological leadership in the future. In contrast to earlier Schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate, here we find: first, that the usual Schumpeterian effect of more intense product market competition (PMC) is almost always outweighed by the increased incentive for firms to innovate in order to escape competition, so that PMC has a positive effect on growth; second, that a little imitation is almost always growth-enhancing, as it promotes more frequent neck-and-neck competition, but too much imitation is unambiguously growth-reducing. The model thus points to complementary roles for competition (anti-trust) policy and patent policy.

A model of endogenous growth is developed in which vertical innovations, generated by a competitive research sector, constitute the underlying source of growth. Equilibrium is determined by a forward-looking difference equation, according to which the amount of research in any period depends upon the expected amount of research next period. One source of this intertemporal relationship is creative destruction. That is, the prospect of more future research discourages current research by threatening to destroy the rents created by current research. The paper analyzes the positive and normative properties of stationary equilibria, in which research employment is constant and GNP follows a random walk with drift, although under some circumstances cyclical equilibria also exist. Both the average growth rate and the variance of the growth rate are increasing functions of the size of innovations, the size of the skilled labor force, and the productivity of research as measured by a parameter indicating the effect of research on the Poisson arrival rate of innovations; and decreasing functions of the rate of time preference of the representative individual. Under laissez faire the economy's growth rate may be more or less than optimal because, in addition to the appropriability and intertemporal spillover effects of other endogenous growth models, which tend to make growth slower than optimal, the model also has effects that work in the opposite direction. In particular, the fact that private research firms do not internalize the destruction of rents generated by their innovations introduces a business-stealing effect similar to that found in the partial-equilibrium patent race literature. When we endogenize the size of innovations we find that business stealing also makes innovations too small.

Analysis of patent citations is a core methodology in the study of knowledge diffusion. However, citations made by patent examiners have not been separately reported, adding unknown noise to the data. We leverage a recent change in the reporting of patent data showing citations added by examiners. The magnitude is high: two-thirds of citations on the average patent are inserted by examiners. Furthermore, 40% of all patents have all citations added by examiners. We analyze the distribution of examiner and inventor citations with respect to self-citation, distance, technology overlap, and vintage. Results indicate that inferences about inventor knowledge using pooled citations may suffer from bias or overinflated significance levels.

Laboratory experiments on free riding have produced mixed results. Free riding is seldom observed with single-shot games; however, it is often approximated in finitely repeated games. There are two prevailing hypothesis for why this is so: strategies and learning. This paper discusses these hypotheses and presents an experiment that examines both.

We analyze the problem faced by a financially weak independent inventor when selling a valuable, but easily imitated, invention for which no property rights exist. The inventor can protect his or her intellectual property by negotiating a contingent contract (with a buyer) prior to revealing the invention or, alternatively, the inventor can reveal the invention and then negotiate with the newly informed buyer. Despite the risk of expropriation, we find that, in equilibrium, an inventor with little wealth can expect to appropriate a sizable share of the market value of the invention by adopting the latter approach.

Ideas are difficult to sell when buyers cannot assess an idea's value before it is revealed and sellers cannot protect a revealed idea. These problems exist in a variety of intellectual property sales ranging from pure ideas to poorly protected inventions and reflect the nonverifiability of key elements of an intellectual property sale. An expropriable partial disclosure can be used as a signal, allowing the seller to obtain payment based on the value of the remaining (undisclosed) know-how. We examine contracting after the disclosure and find that seller wealth is pivotal in supporting a partial disclosure equilibrium and in determining the payoff size.

Exploitation of an innovation commonly requires some disclosure of enabling knowledge (e.g., to obtain a patent or induce complementary investment). When property rights offer only limited protection, the value of the disclosure is offset by the increased threat of imitation. Our model incorporates three features critical to this setting: innovation creates asymmetric information, innovation often has only limited legal protection, and disclosure facilitates imitation. Imitation depends on inferences the imitator makes about the innovator's advance. We find an equilibrium in which small inventions are not imitated, medium inventions involve a form of "implicit licensing," and large inventions are protected primarily through secrecy when property rights are weak.

We develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Our theory also implies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.

In a duopoly where one firm has the idea for a non-patentable innovation, the expected profits from the innovation will not be a monotonic function of the cost of innovating. Furthermore, a costly innovation may be undertaken, where an inexpensive one would not have been, all other things being equal.

In this paper, we provide a conceptual framework for understanding the phenomenon of exclusive dealing, and we explore the motivations for and effects of its use. For a broad class of models, we characterize the outcome of a contracting game in which manufacturers may employ exclusive dealing provisions in their contracts. We then apply this characterization to a sequence of specialized settings. We demonstrate that exclusionary contractual provisions may be irrelevant, anticompetitive, or efficiency-enhancing, depending on the setting. More specifically, we exhibit the potential for anticompetitive effects in noncoincident markets (i.e., markets other than the ones in which exclusive dealing is practiced), and we explore the potential for the enhancement of efficiency in a setting in which common representation gives rise to incentive conflicts. In each instance, we describe the manner in which equilibrium outcomes would be altered by a ban on exclusive dealing. We demonstrate that a ban may have surprisingly subtle and unintended effects.

Abstract: Does the disclosure requirement of the patent system encourage the diffusion of inventions? This paper builds a simple model where firms choose between patents and trade secrecy to protect inventions. Diffusion is not more likely with a patent system nor is the "market for technology" necessarily greater.

Open source software, developed by volunteers, appears counter to the conventional wisdom that private provision of public goods is socially more efficient. But complexity makes a difference. Under standard models, development contracts for specialized software may be difficult to write and ownership rights do not necessarily elicit socially optimal effort. I consider three mechanisms that improve the likelihood that firms can obtain the software they need: pre-packaged software, Application Program Interfaces (APIs) and Free/Open Source software (FOSS). I show that with complex software, some firms will choose to participate in FOSS over both "make" or "buy" and this increases social welfare. In general, FOSS complements proprietary provision, rather than replacing it. Pre-packaged software can coexist in the marketplace with FOSS: pre-packaged software addresses common uses with limited feature sets, while firms with specialized, more complex needs use FOSS.

We analyze the effects of a "winner-take-all" patent mechanism on the riskiness of the research strategies chosen by competing firms, as well as on the firms' incentives to duplicate research projects. Nash equilibrium choices are compared with the social optimum in a one-shot, simultaneous-move game in which competitors choose the riskiness or correlation of their research performances. We show that neither society nor firms have any preference for correlation per se, while the divergence between social and privately optimal levels of risk depends on skewness characteristics of the probability distribution over discovery dates and on levels of risk aversion.

This paper introduces a model of "feedback effect equilibrium", i.e. equilibria in which an asymmetrically informed agent is motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly useful information to competing agents. This revelation to the competition serves to reduce the value of the private information held by the first agent. Models of this kind are of obvious relevance to realistic theories of product or financial market disclosure policies of firms, patenting, and a host of related behavioural and regulatory issues. This model is developed in the context of a set of firms engaged in research and development rivalry, in which the value of privately held and disclosed information arises from its implications for the likelihood and timing of productive innovation.

This paper uses data on judicial citations to explore whether the diffusion and/or application of knowledge within an organisation is affected by worker connectivity. Developing a simple model of discretionary citations, we distinguish between two hypotheses: knowledge diffusion whereby connected judges are more likely to be aware of each others' cases than unconnected judges, and socialisation whereby judges are more likely to be positively disposed to judges to whom they are more connected. Our empirical strategy exploits three important institutional features: (a) the random allocation of judges to case committees in the English Court of Appeal, (b) the existence of both positive and neutral citations and (c) the fact that connections occur over time. We are able to reject the knowledge diffusion hypothesis in its simplest form. We are unable to reject the socialisation hypothesis, and find strong evidence to support it. The paper concludes with a discussion of implications for other knowledge-based organisations.

This paper examines the empirical relationship between technological innovations, market share and stock market value. New developments in the estimation of dynamic count data models are used to control for unobserved firm specific heterogeneity. We find a robust and positive effect of market share on observable headcounts of innovations and patents although increased product market competition in the industry tends to stimulate innovative activity. Furthermore, the impact of innovation on market value is larger for firms with higher market shares. We argue that our results are consistent with models where high market share firms have incentives to pre-emptively innovate.

We study the indeterminacy of equilibria in infinite horizon capital accumulation models with technological externalities. Our investigation encompasses models with bounded and unbounded accumulation paths, and models with one and two sectors of production. Under reasonable assumptions we find that equilibria are locally unique in one-sector economies. In economies with two sectors of production it is instead easy to construct examples where a positive external effect induces a two-dimensional manifold of equilibria converging to the same steady state (in the bounded case) or to the same constant growth rate (in the unbounded case). For the latter we point out that the dynamic behavior of these equilibria is quite complicated and that persistent fluctuations in their growth rates are possible.

This research examines the ability of six popular Web search engines, individually and collectively, to locate Web pages containing common marketing/management phrases. We propose and validate a model for search engine performance that is able to represent key patterns of coverage and overlap among the engines. The model enables us to estimate the typical additional benefit of using multiple search engines, depending on the particular set of engines being considered. It also provides an estimate of the number of relevant Web pages not found by any of the engines. For a typical marketing/management phrase we estimate that the "best" search engine locates about 50% of the pages, and all six engines together find about 90% of the total. The model is also used to examine how properties of a Web page and characteristics of a phrase affect the probability that a given search engine will find a given page. For example, we find that the number of Web page links increases the prospect that each of the six search engines will find it. Finally, we summarize the relationship between major structural characteristics of a search engine and its performance in locating relevant Web pages.

How do workers make wage comparisons? Both an experimental study and an analysis of 16,000 British employees are reported. Satisfaction and well-being levels are shown to depend on more than simple relative pay. They depend upon the ordinal rank of an individual's wage within a comparison group. Rank itself thus seems to matter to human beings. Moreover, consistent with psychological theory, quits in a workplace are correlated with pay distribution skewness.

Abstract While most of us who study intellectual and technical advancement believe that innovations tend to swarm, the details of this process are not well understood. The aggregate-level behavior of US patents is examined as a way to better infer the process that generates innovation. The amount of swarming decreases as the observational period increases, which indicates that the process of innovation is not perfectly self-similar. Instead, the effects of innovations are mostly contained within specialized areas, and do not often trigger further advances in other fields.

This paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms. The stochastic evolution of the state of competition depends on the respective effort rates of the firms. The question is whether the current leader works harder than the laggard-does the `gap' between firms tend to increase or decrease? We show that several effects are at work. The state tends to evolve in the direction where joint payoffs are greater. Since joint payoffs are related to joint product-market profits less joint effort costs, there are two classes of effect: the joint-profit effect and various joint-cost effects. The latter result in part from the pattern of profits, and in part from endpoint effects that give relief from efforts. Asymptotic expansions illuminate these influences. Moreover, we show by numerical simulation that there is another kind of joint-cost effect. The pattern of joint effort costs can influence the pattern of evolution of market structure, and the evolution of the pattern of market structure can influence the pattern of efforts, in a mutually self-reinforcing manner. In particular, there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader.

We report on experiments replicating the Partners and Strangers design and we find some evidence that may help to accommodate previous diverging partners/strangers results. This finding comes out of a preliminary investigation into whether nationality makes a difference as far as free-riding is concerned. We seem to have identified a strong effect on behaviour resulting from national differences (which, in turn, presumably reflect cultural and sociological differences between subject groups), both on average contribution and, possibly, on the attitude toward playing in stranger or partner sessions. This seems to point out the existence (and relevance) of different social norms in different social and cultural contexts. We have also explored the influence of a change to Public Bads and we have further investigated the Restart Effect. Our results both in the final rounds and especially in the restart indicate that learning requires much more time and trials than expected and does not seem to provide a full explanation of the observed behaviour.

Keywords: Nationality,Partners,Public goods/bads,Social norms,Strangers,Voluntary giving

While many preceding studies discuss the equilibrium intensity of R&D, this article focuses on its equilibrium direction. There can be a pure-strategy equilibrium in which multiple firms "cluster," i.e., attempt to develop the same technology even if (i) potential technologies are ex ante equally promising, (ii) each technology can be patented by no more than one firm, and (iii) there are no informational spillovers among firms. Economic applications of this clustering result are not confined to R&D. Any situation where agents are racing in search of exclusive economic opportunities can be an example of this model.

A global game is an incomplete information game where the actual payoff structure is determined by a random draw from a given class of games and where each player makes a noisy observation of the selected game. For $2 times 2$ games, it is shown that, when the noise vanishes, iterated elimination of dominated strategies in the global game forces the players to conform to Harsanyi and Selten's risk dominance criterion.

In this article, I present a model of cumulative innovation to investigate what factors should influence a court's decision when a patentee alleges that another inventor has infringed the patent with an improved version of the patented product. The model reveals how the optimal patent policy would extend broad protection to those inventions that have very little value (standing alone) relative to the improvements that others may subsequently invent. I also examine whether courts should allow a patentee and competing inventors with improved versions of the patented product to enter collusive agreements. The model indicates that such a policy could create incentives for inefficient entry by imitators who "invent around" the original patent.

We analyze an R&D race in which, in each period, two firms each choose which of two research projects to invest in. Each observes the other's past choices and so strategic search is possible. Equilibrium is efficient if the projects differ only in their probability of being the "right" project. If they differ in other dimensions (e.g., cost), then there may be too much or too little duplication relative to the social optimum.

A model of dynamic R&D behavior is presented in which participants in the race have imperfect information about the (true) "hazard rate" of the R&D process. In this model, a firm will be ambivalent about a rival firm's success at an intermediate stage. On the one hand, the probability of winning is reduced, since a rival firm is ahead and the technological gap is larger. This effect is always negative. On the other hand, the discovery could be a signal that the project is not as hard after all ("If you can do that, why not me?"), which could shorten the expected time needed for the discovery. This is a positive effect or a rival firm's success, one that is not present in existing models and hence has been ignored up to now. According to the relative magnitude of these two opposing effects, a much richer description of real-world R&D behavior is obtained. This article also provides a potential explanation of the strategic practice of innovation shelving.

Patent litigation reveals important information about the validity of the contested patent to other potential entrants. This paper explores the implications of such informational externalities for entry dynamics in the presence of multiple potential entrants. The nature of the entry game can be one of either waiting or pre-emption depending on the degree of patent protection. Therefore, the payoffs for the patentee and the initial imitator are discontinuous in the degree of patent protection. Furthermore, strengthening intellectual property rights is not necessarily desirable for the patentee. The analysis may also help explain the apparently puzzling practice of delaying patent suits.

In a model with moral hazard and asymmetric information, we show that it can be welfare improving to differentiate patent lives when firms have different R&D productivities. A uniform patent life provides too much R&D incentive to low-productivity firms and too little to high-productivity ones. The optimally differentiated patent scheme can be implemented through a menu of patent lives (or renewals) and associated fees. We characterize the optimal mechanism and use simulation analysis to compare it with existing patent renewal systems and to illustrate the potential welfare gains from the optimal policy.

This study replicates Andreoni's (Journal of Public Economics, 1988, 37, 291-304) public goods experiments. The results are not consistent with simple learning, but are compatible with strategies, unlike Andreoni's original experiment. An investigation of the variance of contributions provides an organizing explanation of previous results.

Keywords: Experiments,Partners,Public goods,Strangers

Strategic considerations may induce a resource importing country to invent a substitute earlier than it intends to put it to use. There are also circumstances in which it would wish to delay an invention date even if it could obtain it at an earlier date at no extra cost. Similar paradoxical results obtain if resource cartels behave strategically. Setting prices high may be a way of deterring invention. If those engaged in R & D are not resource users, and the cartel has access to similar R & D technology, it will pre-empt rivals. This may not be the case if resource users can also engage in R & D.

This paper studies the nature and consequences of competition in R&D and the relationship between this form of competition and competition in the product market, by focusing on comparisons of speed of research, number of independent research laboratories, and level of risk undertaken. Among the results: competition in the current product market reduces the level of innovation (relative to monopoly); competition in R&D increases the level of innovation, possibly beyond the socially optimal level. Under certain conditions, it pays a monopolist to preempt potential competitors, thereby enabling the monopoly to persist. Market equilibrium may entail excessively fast research with insufficient risk-taking.

We consider the problem of bargaining over the disclosure of interim research knowledge between two participants in an R&D race for an ultimate, patentable invention. Licence fee schedules that are functions of the "amount of knowledge disclosed", by the leading to the lagging agent, are examined for their abilities to attain efficient outcomes and varying shares of the surplus arising from disclosure. In her sequential-offers bargaining games, the uninformed buyer is able to elicit full disclosures without sharing the incremental surplus with any type of the licensor, and thus do as well as a perfectly informed and discriminating knowledge licensee.

We present an endogenous growth model in which some firms devote resources to developing higher-quality products (innovative R&D) and other firms devote resources to copying these products (imitative R&D). Although consumers benefit from the knowledge created by both types of R&D activities, only innovative R&D subsidies lead to faster economic growth; imitative R&D subsidies actually lead to slower economic growth. A key assumption driving these conclusions is that R&D activities are subject to decreasing returns. When R&D activities are subject to constant returns, as is commonly assumed, the only equilibrium with both innovation and imitation is unstable.

This note extends the results of Vickers [1986] examining the consequences on the evolution of market structure of having payoffs-and thus profits and incentives-which depend on the technological history of the firms. In a simple duopoly model we determine the conditions under which the technological leadership of a firm is strengthened over time (Increasing Dominance) or is progressively eroded by the rival (Catching-Up). This reformulation of Vickers' model can also accommodate incremental innovations, i.e. technological changes which do not allow the innovator to overtake the rival.

This paper reexamines the issue of optimal patent breadth in extending the earlier literature to the case where many firms race for a patent. It also discusses several examples that suggest the relevance of the nature of competition prevailing in the product market to explain the diverse results found in the literature. Loosely speaking, the less efficient is competition in the product market, the more likely it is that broad and short patents are socially optimal.

We analyze the empirical relationship between journal prices, their quality measured by their citation counts, their age, as well as conduct of publishers. The database covers 22 scientific fields and more than 2,600 of among the most highly reputed and cited journals in 2003. We show that (a) for-profit journals charge roughly 3 times more than journals run by scientific societies; (b) the number of citations has a positive impact on prices; (c) there are large differences in prices across fields that vary by a factor between 1 and 6; these are highly (and positively) correlated with the degree of concentration in the industry.

In this study we examine how the introduction of a reference lottery with nonrandom outcomes alters the way in which choices among pairs of lotteries are made, even if it does not alter the choices. We use different domains (some of the lotteries produce gains, other losses) and different contexts (one member of the pair, the reference lottery, may be either risky or certain). In our experiment, the change from gain to loss domain affects choices: subjects are risk averse in the gain domain, but not in the loss domain. On the contrary, the context effect of the certain lottery does not affect choices. However, the introduction of the certainty reference lottery affects two behavioral variables, response time and brain activation, in a dramatic way. This result suggests that the certainty lottery promotes a different process through which preferences are revealed, even if the differences among lotteries may not be large enough to induce different choices.

In this paper, the evolution of product differentiation in industries is modeled as the result of a cumulative cost-reduction process subject to spillovers in a differentiated oligopoly. Our results suggest that the long-run outcome is dependent on the intensity of spillovers and the shape of their diffusion function. With weak spillovers, firms dig their niche over time, differentiation remains important and cost-reduction keeps going. By contrast, if spillovers are strong and have a concave diffusion function, firms gradually use more similar technologies. This standardization process involves less and less investment. For spillovers of intermediate strength, complex technological landscapes may arise.

In a more general setting than has been considered hitherto, this paper examines how the incumbent in a market threatened by entry can exploit its first-mover advantage by licensing its technology not to a potential entrant but to firms that would have remained outside the industry. It is shown, among other things, that the incumbent may subsidize the variable costs of its licensees in order to deter entry. Even when entry is not deterred, it is demonstrated that the incumbent might opt to invite outsiders as licensees. /// Firmes a qui on accorde une licence en tant que barrieres a l'entree. Ce memoire examine, dans un cadre de reference plus general que d'habitude, comment la firme qui occupe un marche menace par la possibilite d'un nouvel arrivant peut prendre l'initiative en accordant une licence non pas a l'entrant potentiel mais a des firmes qui demeureraient hors de l'industrie. On montre que, entre autres choses, la firme en place peut subventionner les couts variables des firmes auxquelles elle accorde une licence afin de decourager l'entree. Meme quand on n'empeche pas l'entree de la nouvelle firme, on montre que l'entreprise en place peut choisir d'inviter les firmes externes a se prevaloir de l'acces a la licence.

In this article we examine the interaction between firms' product and process innovation decisions, and the role patent policy can play in directing technological change toward a socially efficient mix of innovations. Product innovation is a variant on a pioneer's new product; process innovation improves upon the cost efficiency of production. In a model with heterogeneous consumers, we show that an entrant relaxes competition by trading off too much process innovation in favor of product innovation, relative to what the social planner would desire. This bias toward product innovation can be corrected through appropriate choice of patent breadths on product and process innovations.

We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the life of its products) nor to give discounts to repeat customers, the rate of product introductions is too slow-in comparison with the social optimum. On the other hand, if the monopolist is able to artificially shorten the durability of its products or to offer price discounts to repeat customers, it can raise its profit and, at the same time, implement the social optimum.

A dynamic noncooperative game in which firms choose output and cost-reducing investment sequences is developed. The sequences exhibit several properties of manufacturing industries. Several steady states exist. Under some reasonable conditions only industry structures in which firms have different market shares can be locally stable steady states. So the model presents one explanation of the source of differences among firms in homogeneous good oligopolies.

In this article we demonstrate how a long duration of patents affects investment in new product development. We construct an overlapping-generations model of saving, investment, and product innovation and show that a long duration of patents results in a high aggregate value of monopoly firms that compete for the younger generation's savings with investment in new product development. We analyze the crowding-out effects of long duration of patents and their implications for individuals' welfare under different patent regimes.

This paper describes a stochastic model of the process of competition via technological innovation as it might occur within a single industry. Individual firms undertake R&D projects in the hope of acquiring a decisive competitive advantage over their rivals. But such advantages and the economic rents arising from this are only temporary; they eventually disappear in the face of imitation, entry, and innovation by other firms. At the industry's long-run equilibrium, concentration and the pace of technological innovation are jointly determined by the conditions of entry and the extent of innovative opportunity. The model implies relationships among these variables that have in fact been detected in the empirical R&D literature.

This article analyzes licensing in a noncooperative R&D game. We ask two questions: What are the incentives for licensing a production technology and what is the impact of licensing on the pattern of innovation and the consequent evolution of industry costs and market structure? The gains from trading information through licensing contracts are achieved through the replacement of inefficient production techniques (the ex post incentive) and the elimination of inefficient research expenditures (the ex ante incentive). In a duopoly the availability of licensing encourages research when the firms' initial production technologies are close in costs and discourages research when initial costs are asymmetric.

Licensing contracts for newly patented innovations are observed to vary along several dimensions, including the form and size of the payment to the inventor (fixed fee versus some output-based royalty), the degree of exclusivity, and the division of rents. In this article, we show that the form of the contract can be explained by two problems in technology exchange: the superiority of a licensor's precontractual information about the economic value of the innovation and the fact that sharing this information with the licensee may facilitate imitation. We show that a licensor signals her technology type with an output-based payment (or royalty) and may leave some of the rents with the licensee. Conditions under which exclusive license contracts (linear and nonlinear) and nonexclusive linear contracts are used to transfer technology are identified.

In providing rewards to innovators, there is a tradeoff between patent length and breadth. This article provides conditions under which the optimal patent policy involves infinitely-lived patents, with patent breadth adjusting to provide the required reward for innovation.

Economists usually assume that monetary incentives improve performance, and psychologists claim that the opposite may happen. We present and discuss a set of experiments designed to test these contrasting claims. We found that the effect of monetary compensation on performance was not monotonic. In the treatments in which money was offered, a larger amount yielded a higher performance. However, offering money did not always produce an improvement: subjects who were offered monetary incentives performed more poorly than those who were offered no compensation. Several possible interpretations of the results are discussed.

We develop a model of strategic networks that captures two distinctive features of interfirm collaboration: bilateral agreements and nonexclusive relationships. Our analysis highlights the relationship between market competition, firms' incentives to invest in R&D, and the architecture of collaboration networks. In the absence of firm rivalry, the complete network, where each firm collaborates with all others, is uniquely stable, industry-profit maximizing, and efficient. By contrast, under strong market rivalry the complete network is stable, but intermediate levels of collaboration and asymmetric networks are more attractive from a collective viewpoint. This suggests that competing firms may have excessive incentives to form collaborative links.

This is a study of factors responsible for the wide cross-sectional differences in the past and current rates of use of hybrid seed corn in the United States. Logistic growth functions are fitted to the data by states and crop reporting districts, reducing differences among areas to differences in estimates of the three parameters of the logistic: origins, slopes, and ceilings. The lag in the development of adaptable hybrids for particular areas and the lag in the entry of seed producers into these areas (differences in origins) are explained on the basis of varying profitability of entry, "profitability" being a function of market density, and innovation and marketing cost. Differences in the long-run equilibrium use of hybrid corn (ceilings) and in the rates of approach to that equilibrium (slopes) are explained, at least in part, by differences in the profitability of the shift from open pollinated to hybrid varieties in different parts of the country. The results are summarized and the conclusion is drawn that the process of innovation, the process of adapting and distributing a particular invention to different markets and the rate at which it is accepted by entrepreneurs are amenable to economic analysis.

We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward-looking, profit-maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning.

We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever-expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.

We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case it is optimal to increase effort over time as the project nears completion. The value of a research project is convex in its payoff on completion and in the difficulty of the project. Relaxing (a), we find in general a simple, positive relationship between the optimal expenditure rate at any point in time and the (expected) value at that time of the research program. We also show that, for a given level of expected difficulty, a riskier project is always preferred to a safe project. Relaxing (b), we find again that research outlays increase as further progress is made.

This paper makes two contributions to the modeling of addiction. First, we provide new and convincing evidence that smokers are forward-looking in their smoking decisions, using state excise tax increases that have been legislatively enacted but are not yet effective, and monthly data on consumption. Second, we recognize the strong evidence that preferences with respect to smoking are time inconsistent, with individuals both not recognizing the true difficulty of quitting and searching for self-control devices to help them quit. We develop a new model of addictive behavior that takes as its starting point the standard "rational addiction" model, but incorporates time-inconsistent preferences. This model also exhibits forward-looking behavior, but it has strikingly different normative implications; in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the "internalities" imposed by smokers on themselves. We estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case.

We study a two-period model where ex ante inferior choice may tempt the decision-maker in the second period. Individuals have preferences over sets of alternatives that represent second period choices. Our axioms yield a representation that identifies the individual's commitment ranking, temptation ranking, and cost of self-control. An agent has a preference for commitment if she strictly prefers a subset of alternatives to the set itself. An agent has self-control if she resists temptation and chooses an option with higher ex ante utility. We introduce comparative measures of preference for commitment and self-control and relate them to our representations.

To study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty, we define and characterize dynamic self-control (DSC) preferences. DSC preferences are recursive and separable. In economies with DSC agents, equilibria exist but may be inefficient; in such equilibria, steady state consumption is independent of initial endowments and increases in self-control. Increasing the preference for commitment while keeping self-control constant increases the equity premium. Removing nonbinding constraints changes equilibrium allocations and prices. Debt contracts can be sustained even if the only feasible punishment for default is the termination of the contract.

This paper investigates perfect equilibrium in a model of a race in which two players are competing for an indivisible prize. The winner is the first player to reach the finishing line. It is shown that the behaviour of the winner of the race is often exactly as if he were the only player: the rival makes no difference. Even if competition does affect the winner's behaviour, it does so only in the first stage of the race and not thereafter. It is shown how several factors combine to determine which player will win: relative valuations of the prize, discount rates, efficiency at making progress and initial distances from the finishing line. Insofar as the model applies to patent race, it suggests that the potential competition faced by one firm in a patent race (e.g. an incumbent monopolist) may be of little or no consequence.

The paper presents two models of races in which there is both technological uncertainty and strategic interaction between competitors as the race unfolds. Most of the existing literature examines one or other of these features, but not the two combined. Our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them. In our principal model, which is of a one-dimensional race, it is shown that the leader in the race makes greater efforts than the follower, and efforts increase as the gap between competitors decreases. Under certain conditions the same results hold in our second, related model, which is of a two-dimensional race.

This paper looks to the literature on one-dimensional, location, models and adds to it a simple process of R&D. Differentiated-products models have often included sequential entry in order to add realism, but the order of entry is known. Here, the order is not known a priori. Also, interim profits are not ignored, allowing the monopoly profits to affect the outcome. It is found that firms do not necessarily locate at the extrema, but often race for the optimal monopoly variety-the midpoint of the interval.

The debate between the North and the South about the enforcement of intellectual property rights is examined within a dynamic general equilibrium framework in which the North invents new products and the South imitates them. A welfare evaluation of a policy of tighter intellectual property rights is provided by decomposing the welfare change into four items: (a) terms of trade; (b) production composition; (c) available products; and (d) intertemporal allocation of consumption. The paper provides a theoretical evaluation of the effect of each one of these items and their relative size. The analysis proceeds in stages. It begins with an exogenous rate of innovation in order to focus on the first two elements. The following two components are added by endogenizing the rate of innovation. Finally, the paper considers the role of foreign direct investment.

This article studies moral hazard with many agents. The focus is on two features that are novel in a multiagent setting: free riding and competition. The free-rider problem implies a new role for the principal: administering incentive schemes that do not balance the budget. This new role is essential for controlling incentives and suggests that firms in which ownership and labor are partly separated will have an advantage over partnerships in which output is distributed among agents. A new characterization of informative (hence valuable) monitoring is derived and applied to analyze the value of relative performance evaluation. It is shown that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally. Competition per se is worthless. The role of aggregate measures in relative performance evaluation is also explored, and the implications for investment rules are discussed.

When innovations are heterogeneous, it may be advantageous to provide a variety of patents. By trading off patent breadth for length, it is possible that fees are not needed in the optimal policy. We present two examples. The first is a quality-ladder model, in which innovations benefit society directly as well as through their use as building blocks to future inventions, and the rate of arrival for the future innovation is unobserved. More fertile innovations get more breadth for a shorter time. Menus may also be useful in the case of horizontal product differentiation.

This paper models the effect of patent length on the rate-of-innovation and consumer welfare. We find that the patent length that maximizes the rate-of-innovation exceeds that which maximizes consumer welfare. We show a countervailing effect of patent length upon the "size" and "frequency" of innovation. Longer patents increase the size, but decrease the frequency of innovation. The patent lengths that maximize the rate-of-innovation and welfare represent balance points between size and frequency. The divergence of the welfare maximizing and rate-of-innovation maximizing patent lengths has important policy implications that we briefly explore.

New experimental evidence extending the investigation of free-riding behavior in public goods provision is presented. Procedures are developed to deal with the logistical problems inherent in experiments involving many subjects. Data from Voluntary Contribution Mechanism experiments are reported utilizing group sizes of 4, 10, 40 and 100. THese experiments provide replicable results that contradict the widely held view that a group's ability to provide the optimal level of a pure public good is inversely related to group size. On the contrary, groups of size 40 and 100 provided the public good more efficiently than groups of size 4 and 10. Several possible alternative explanations are discussed.

Recent evidence shows that within an industry, smaller firms grow faster and are more likely to fail than large firms. This paper provides a theory of selection with incomplete information that is consistent with these and other findings. Firms learn about their efficiency as they operate in the industry. The efficient grow and survive; the inefficient decline and fail. A perfect foresight equilibrium is proved by means of showing that it is a unique maximum to discounted net surplus. The maximization problem is not standard, and some mathematical results might be of independent interest.

This paper studies the evolution of a competitive industry in which a fixed number of firms reduce costs by innovating and by imitating their rivals' technologies. As the firms' technologies gradually improve, industry output expands and price falls. Technological leaders tend to rely on innovations to reduce their costs, whereas the laggards rely more on imitation. Imitation causes technology to spread from the leaders to the followers and forces some convergence of technology among firms as the industry matures. This convergence is accompanied by faster growth of smaller firms and a consequent tightening of the distribution of output over firms. Since imitation is a kind of spillover of technology, equilibrium is likely to involve insufficient innovative and imitative effort relative to a social optimum.

A tractable dynamic general equilibrium model of continuous product innovation is developed. Patents, or any imitation lag, of infinite duration may achieve too much, too little, or the socially optimum level of innovation. Most surprising, finite-life patents may induce undamped oscillations in innovation.

The choice of development period and consequent introduction time for a single innovation by an expected profit maximizing firm operating under conditions of rivalrous competition is studied. Factors taken into account by the firm are the increasing cost with compression of the development period, the reduction of profit opportunities with prolongation of the development period, and the probability of rival innovation and imitation which affect the potential rewards available to the firm. Comparisons is made with the timing that would be selected in the absence of rivalry. The effects of intense rivalry are also examined.

We compare how much profit an owner of a patented cost-reducing invention can realize by licensing it to an oligopolistic industry producing a homogeneous product, by means of a fixed fee or a per unit royalty. Our analysis is conducted in terms of a noncooperative game involving n + 1 players: the inventor and the n firms. In this game the inventor acts as a Stackelberg leader, and it has a unique subgame perfect equilibrium in pure strategies. It is shown that licensing by means of a fixed fee is superior to licensing by means of a royalty for both the inventor and consumers. Only a "drastic" innovation is licensed to a single producer.

We present a model of R&D with endogenous spillovers and demonstrate that noncooperation can produce maximal spillovers. The only other noncooperative outcome is minimal spillovers. When noncooperation achieves maximal spillovers so does an RJV, whereas minimal noncooperative spillovers imply partial-but not necessarily maximal-spillovers by an RJV. Partial RJV spillovers are chosen for anti-competitive reasons and an RJV may also close a lab for anti-competitive reasons. The possibility of anti-competitive outcomes is precluded in the existing literature on RJVs which focuses on symmetric outcomes. Our model predicts when anti-competitive behaviour by an RJV arises.

I analyze the effects of cooperative research, whereby member firms agree to share the costs and fruits of a research project before they undertake it. In this model industrywide agreements tend to have socially beneficial effects when the degree of product market competition is low, when there are R&D spillovers in the absence of cooperation, when a high degree of sharing is technologically feasible, and when the agreement concerns basic research rather than development activities. I show that a royalty-free cross-licensing agreement among any number of firms lowers the equilibrium level of innovation even though it increases the efficiency of R&D through sharing.

We study a three-stage, asymmetric duopoly game of R&D rivalry. The stages are: (1) development of an innovation; (2) fixed-fee licensing of the innovation; and (3) sale of the final product. We find that major innovations will not be licensed, but that equally efficient firms will tend to license minor innovations. For some innovations, licensing is both privately and socially undesirable. If at least one of the two producers would refuse to license (were it to acquire the innovation), then licensing will not occur; an excluding firm will obtain the innovation. The possibility of licensing may decrease the returns to innovation if the licensee appropriates most of the licensing gains to trade.

We examine the optimal licensing strategy of a research lab selling to firms who are product market competitors. We consider an independent lab as well as a research joint venture. We show that (1) demands are interdependent and hence the standard price mechanism is not the profit-maximizing licensing strategy; (2) the seller's incentives to develop the innovation may be excessive; (3) the seller's incentives to disseminate the innovation typically are too low; (4) larger ventures are less likely to develop the innovation, and more likely to restrict its dissemination in those cases where development occurs; and (5) a downstream firm that is not a member of the research venture is worse off as a result of the innovation.

We study the rivalry between two firms to develop an innovation in a dynamic setting that allows for postdevelopment dissemination of the innovation, such as licensing or imitation. This dissemination may cause the noninnovating firm to benefit from the discovery. When this occurs, conventional results in the economics of R & D no longer need apply. We find that industry leaders will tend to develop minor innovations, but will develop major innovations only if imitation is difficult.

In 1839 the French government purchased the Daguerreotype patent and placed it in the public domain. Such patent buyouts could potentially eliminate the monopoly price distortions and incentives for rent-stealing duplicative research created by patents, while increasing incentives for original research. Governments could offer to purchase patents at their estimated private value, as determined in an auction, times a markup equal to the typical ratio of inventions' social and private value. 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.

This paper develops a simple general-equilibrium model of product cycle trade. There are two countries, innovating North and noninnovating South. Innovation consists of the development of new products. These can be produced at first only in North, but eventually the technology of production becomes available to South. This technological lag gives rise to trade, with North exporting new products and importing old products. Higher Northern per capita income depends on the quasi rents from the Northern monopoly of new products, so that North must continually innovate not only to maintain its relative position but even to maintain its real income in absolute terms.

Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing "too much" liquidity.

Empirical estimates of the private value of patent protection are derived for four technology areas-computers, textiles, combustion engines, and pharmaceuticals-using new patent data for West Germany, 1953-1988. Patentees must pay renewal fees to keep their patents in force as well as legal expenses in order to enforce them. A dynamic stochastic discrete choice model of optimal renewal decisions is developed incorporating both learning and depreciation as well as the potential need to prosecute infringement. The evolution of the distribution of returns over the life of a group of patents is calculated for each technology using a minimum distance simulation estimator. Results indicate that the aggregate value of protection generated per year is on the order of 10% of related R&D expenditure.

We consider the free-market and socially optimal outcomes in a general oligopoly model with many firms which first engage in R&D and then compete in either output or price. Strategic behavior by firms tends to reduce output, R&D, and welfare and so justifies higher subsidies except when R&D spillovers are low and firms' actions are strategic substitutes. It also reduces the benefits of R&D cooperation. Moreover, policies to encourage cooperation are likely to be redundant (since it is always privately profitable) and simulations suggest that the welfare cost of lax competition policy is high.

An extensive theoretical literature examines technological competition, and in particular whether leaders maintain their standing. These models, however, have received little empirical support. I examine innovation in the disk drive industry, an environment particularly conducive to identifying racing behavior. Strategic variables prove significant in explaining the decision to innovate. The patterns are in accord with Reinganum's work: firms that trail the leader innovate more. I add controls for technological opportunity, financing constraints, and firm turnover. When firms manufacture drives for internal use or there are many entrants, and strategic interactions may be less important, the effects are less pronounced.

The paper builds a tractable model of patent pools, agreements among patent owners to license sets of their patents. It provides a necessary and sufficient condition for patent pools to enhance welfare and shows that requiring pool members to be able to independently license patents matters if and only if the pool is otherwise welfare reducing. The paper allows patents to differ in importance, asymmetric blocking patterns, and licensors to also be licensees. We undertake some initial exploration of the impact of pools on innovation. The analysis has broader applicability than pools, being relevant to a number of co-marketing arrangements.

We examine a game-theoretic model of a two-firm R&D race in which expenditures on R&D and the concomitant increase in experience/learning enable the firms to increase their probability of discovering an invention. The learning process is stochastic. It generates a unique subgame-perfect equilibrium for identical firms with the characteristic that the leader never drops out, but the follower drops out if the leader gains a significant lead. The leader can find it optimal to drop out if the firms value the invention differently or have different R&D efficiencies. Thus, our analysis generates results between vigorous competition and natural monopoly.

Recent research has documented an `endowment effect' whereby people become more attached to objects they receive than would be predicted from their prior desire to possess the object. In two experiments, we test whether people are aware of the effect-whether they realise that they will become attached to an object once they receive it. In both experiments, subjects without an object underestimated how much they would value the object when they received it.

To account for the possibility that firms are unsure about the ease of innovation, we formulate a differential game of R&D competition with an unknown hazard rate. We show, as time passes without success, firms become more pessimistic about eventual innovation, reducing their R&D investment and possibly exiting the race. An increase in the number of competing firms tends to increase firms' R&D intensities, for given beliefs, but because beliefs evolve at different rates depending on the number of firms in the race, time paths of R&D investment intensity are not unambiguously ordered with respect to the number of competing firms.

This paper investigates the factors determining how rapidly the use of a new technique spreads from one firm to another. A simple model is presented to help explain differences among innovations in the rate of imitation. Deterministic and stochastic versions of this model are tested against data showing how rapidly firms in four industries came to use twelve important innovations. The empirical results seem quite consistent with both versions of the model.

Innovators who have made significant breakthroughs may be tempted to get a head start in developing the applications of a new discovery before commercializing any new product. We consider how this socially undesirable waiting period and the pattern of development of subsequent innovations are affected by two patent protection regimes which we call "length" and "scope" protection. Our main finding is that the scope of the patent, and not its length, is the dimension that should be used to induce early disclosure of fundamental innovations while still preserving firms' incentive to do R&D. Furthermore, the optimal protection increases with rivalry in the markets for applications.

In a class of games including some Cournot and Bertrand games, a sequence of plays converges to the unique Nash equilibrium if and only if the sequence is "consistent with adaptive learning" according to the new definition we propose. In the Arrow-Debreu model with gross substitutes, a sequence of prices converges to the competitive equilibrium if and only if the sequence is consistent with adaptive learning by price-setting market makers for the individual goods. Similar results are obtained for "sophisticated" learning. All the familiar learning algorithms generate play that is consistent with adaptive learning. Journal of Economic Literature Classification Numbers: 026, 021.

To function effectively, individuals must voluntarily postpone immediate gratification and persist in goal-directed behavior for the sake of later outcomes. The present research program analyzed the nature of this type of future-oriented self-control and the psychological processes that underlie it. Enduring individual differences in self-control were found as early as the preschool years. Those 4-year-old children who delayed gratification longer in certain laboratory situations developed into more cognitively and socially competent adolescents, achieving higher scholastic performance and coping better with frustration and stress. Experiments in the same research program also identified specific cognitive and attentional processes that allow effective self-regulation early in the course of development. The experimental results, in turn, specified the particular types of preschool delay situations diagnostic for predicting aspects of cognitive and social competence later in life.

While waiting in a delay-of-gratification paradigm, preschool children were shown objects that were either the rewards in the delay-of-reward situation or irrelevant to the delay contingency. All children were encouraged to ideate about the objects while waiting. They either were led to believe that ideating about the objects would help terminate the delay period (instrumental ideation) or were not led to think that their ideation would affect the delay time (noninstrumental ideation). As expected, children were able to wait longer in the instrumental ideation condition than in the noninstrumental ideation condition. Most important, this increased waiting occurred only when the reward objects in the delay contingency were the focus of ideation and not when the ideated objects were irrelevant to the delay contingency. Finally, a significant effect was found for sex (girls waited longer) but not for age. The findings were discussed in light of prior experimental and theoretical work on the specific relationship between cognitive activity and delay of gratification.

I investigate 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. I propose 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.

We examine self-control problems-modeled as time-inconsistent, present-biased preferences-in a model where a person must do an activity exactly once. We emphasize two distinctions: Do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate-do too soon-immediate-reward activities. Sophistication mitigates procrastination, but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed.

In many countries patentees must pay an annual renewal fee in order to keep their patents in force. This paper presents and then estimates a model which uses observations on the proportion of different cohorts of patents which are renewed at alternative ages, and the relevant renewal fee schedules, to estimate the distribution of the returns earned from holding patents, and the evolution of this distribution function over the lifespan of the patents. Since patents are often applied for at an early exploratory stage of the innovation process, the model allows patentees to be uncertain about the sequence of returns that will be earned if the patent is kept in force. The paper solves the implied optimal stopping problem for the micro units, derives the implications of these solutions on the aggregate proportion renewed, and then estimates the parameters of the model from the aggregate data. Separate estimates are obtained from data on post World War II cohorts of patents in each of France the United Kingdom, and Germany.

This paper investigates imitative competition in a two-stage game of strategic product choice in a vertically differentiated market. The innovator chooses its product strategy anticipating the subsequent entry of a rival firm. The rival firm chooses the degree to which it is profitable to differentiate its product from the innovator. It has the second mover advantage that its costs are lower the more closely it copies the innovator's product. But against this advantage is the drawback that the more similar the two products are, the more intense is the price competition between the two firms. The trade-off between imitation and differentiation is affected by the degree of consumer heterogeneity in the market. Consumers differ by income. The relationship between the incentive to imitate and the distribution of income is important, particularly in evaluating the welfare effects of two different policy responses, patent policy and cooperative alliances.

In a decision-theoretic model of a firm, the author represents managers as information processors of limited capacity; efficiency is measured in terms of (1) the number of processors and (2) the delay between the receipt of information by the organization and the implementation of the decision. The author characterizes efficient networks for both one-shot and repeated regimes, as well as the corresponding 'production function' relating the number of items processed to the number of processors and the delay. He sketches some applications to common decision paradigms, and implications for decentralization and organizational returns to scale.

The theoretical literature on innovation has been concerned with a single innovation produced by a number of identical agents. By contrast, we consider a market in which one firm is the current incumbent, while the remaining firms are challengers. Moreover, we consider a sequence of innovations, so that success does not imply that the successful firm reaps monopoly profits forever after, but only until the next, better innovation is developed. We begin with a fully optimizing behavioral model and derive the equivalent of the Schumpeterian "process of creative destruction." That is, a firm enjoys temporary monopoly power but is soon overthrown by a more inventive challenger. The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process...The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates [Schumpeter, 1942, pp. 82-83].

This article examines licensing as a means of choosing the competitors which a patenteemonopolist will face in the period after the patent expires. The queue of entrants consists of two firms which differ in their relative "strengths" as competitors (for example, by size or level of marginal cost). By structuring the industry to be composed of "weak" competitors, the incumbent is able to prolong its dominant position in the industry after the patent expires. Examples are presented in which the evidence suggests that "choosing the competition" was an important motivation of the licensor's behavior.

This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities.

Does an expansion of patent scope induce more innovative effort by firms? We examine responses to the Japanese patent reforms of 1988. Interviews with practitioners and professional documents for patent agents suggest the reforms significantly expanded the scope of patent rights. However, econometric analysis using both Japanese and U.S. patent data on 307 Japanese firms finds no evidence of an increase in either R&D spending or innovative output that could plausibly be attributed to patent reform.

I present evidence on the private value of patent rights in France for different technology fields and nationalities of ownership, using nonparametric techniques and a parametric model of patent renewal. The distribution of the value of patent rights is highly skewed, patent protection is a significant but not the major source of private returns to R&D, and these characteristics vary across technology fields. I compute the R&D cash subsidy that is equivalent to the value of patent rights, measure the variations in value over time, technology fields, and nationalities, and show that these differences are correlated with patent grant rates.

Incentives to develop basic technologies are greater if the patentholder profits from applications or other second-generation products. Assuming that such products infringe the basic patent and that there is not much delay between the innovations, I argue that (i) patents on second-generation products are not necessary to encourage their development and (ii) the patentholder of the basic technology collects a larger share of the profit if applications or other second-generation products are not patentable.

The patent system is mainly a renewal system: the patent life is chosen by the patentee in return for fees. I ask whether such a system can be justified by asymmetric information on costs and benefits of research. In such a model I show that renewal mechanisms (possibly with subsidies) are equivalent to direct revelation mechanisms and therefore cannot be improved on, regardless of the objective function. Under plausible circumstances, patents should have a uniform life, rather than varying in length, as typically occurs under a renewal system.

The stringency of the novelty requirement in patent law affects the pace of innovation because it affects the amount of technical information that is disclosed among firms. It also affects ex ante profitability of research. We compare weak and strong novelty requirements from the standpoint of social efficiency. We ask how our answer depends on the rule that determines which firm gets a patent when two firms have patents pending on the same technology. The possible rules are "first-to-invent," which applies in the U.S., and "first-to-file," which applies everywhere else.

This paper develops a dynamic general equilibrium model of economic growth. The model has a steady-state equilibrium in which some firms devote resources to discovering qualitatively improved products and other firms devote resources to copying these products. Rates of both innovation and imitation are endogenously determined on the basis of the outcomes of $R & D$ races between firms. Innovation subsidies are shown to unambiguously promote economic growth. Welfare is enhanced, however, only if the steady-state intensity of innovative effort exceeds a critical level.

The notion of a Perfect Equilibrium in a multi-Stage game is used to characterize industry equilibrium under Monopolistic Competition, where products are differentiated by quality.

In a market where firms offer products which differ in quality, an upper bound may exist to the number of firms which can coexist at a noncooperative price equilibrium. We fully characterize the conditions under which this possibility arises.

Some recent literature on "vertical product differentiation" has developed the idea that if the nature of technology and tastes in some industry take a certain form, then the industry must necessarily be "concentrated"; and must remain so, no matter how large the economy becomes. The present paper develops this idea further, and looks at some of its implications. This approach offers a simple unified framework within which to re-explore many issues which arise in considering the relationship between advertising, R & D, and market structure.

This paper focuses on the analysis of size distributions of innovations, which are known to be highly skewed. We use patent citations as one indicator of innovation significance, constructing two large datasets from the European and US Patent Offices at a high level of aggregation, ... Statistical methods are applied to analyse the properties of the empirical size distributions, where we put special emphasis on testing for the existence of 'heavy tails', i.e., whether or not the probability of very large innovations declines more slowly than exponentially. While overall the distributions appear to resemble a lognormal, we argue that the tails are indeed fat. ... We find significantly and consistently lower tail estimates for the returns data than the citation data (around 0.6-1 vs. 3-5). ... The heaviness of the tails, particularly as measured by value indicators, we argue, has significant implications for technology policy and growth theory, since the second and possibly even the first moments of these distributions may not exist.

We investigate the effects of knowledge spillovers, numbers of incumbents, and demand characteristics on market equilibria involving either noncooperative firms or a research joint venture. Firms engage in cost-reducing R&D before competing in outputs. Noncooperative R&D expenditure is socially suboptimal with convex demand and likely to be so under general demand functions. A research joint venture involving all firms in the industry always invests too little relative to the social optimum. It may, however, lead to better market performance than is achieved under the noncooperative regime.

This paper examines the positive and normative effects of cooperative R&D-whereby member firms commit themselves to the joint profit-maximizing level of R&D in a "precompetitive stage" but remain fierce competitors in the product market-vis-a-vis noncooperative R&D, socially first-best R&D, and socially second-best R&D. In the presence of sufficiently large R&D spillovers, neither noncooperative nor cooperative equilibria achieve even second-best R&D levels. In the absence of spillover effects, however, while the cooperative R&D level remains socially insufficient, the noncooperative level may overshoot first- and second-best levels of R&D.

Metcalfe's Law states that aggregate network value is proportional to the square of network size, and that implies the individual user's utility is a linear function of network size. This paper explores the functional form of network effects in a simple model of a telephone network, and finds that it can be linear, but only under strong conditions. The paper establishes weaker conditions under which a representative subscriber's utility is a linear function of network size. When these linearity conditions are not satisfied, we show that under some assumptions, the value to a typical subscriber will be an s-shaped function of network size.

This paper examines the use of compulsory lincensing as a policy to combat the monopoly problem associated with the patent system. It introduces the notion of an optimal patent-one where the patent life and the licensing royalty rate are both determined optimally. Under certain simplifying assumptions it is shown that the optimal patent will have an indefinite life, for both process and product innovations. Some preliminary calculations suggest that the use of compulsory licensing may lead to substantial welfare improvements, even if the patent life is left unchanged at 17 years.

The stringency of novelty requirements that patent offices use in judging patentability defines the height of patent protection. We study patent height in a duopoly where firms compete in product improvements. A competitor who wants to invent around the other's patent is restricted by a minimum improvement level. We show that low patent protection does not affect market equilibrium without patent protection. A patent holder can lose with medium patent heights, but not if patents provide high protection. The non patent holder can gain with medium heights but is increasingly worse off with higher patent protection.

The paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate. Does one firm extend its technological superiority to become increasingly dominant, or does technological leadership constantly change hands in a process of "action-reaction"? A simple duopoly model is proposed, in which the answer to this question depends upon the nature of product market behavior. In that model, highly competitive product market behavior leads to increasing dominance, whereas Cournot behavior may lead to action-reaction.

Keywords: Innovation Networks, User Innovation, Open Source Software

University students were instructed to assign grades as fairly as possible to different hypothetical distributions of exam scores (bell, U, positively skewed, and negatively skewed). Experiment 1 demonstrated significant distribution effects that were quantitatively consistent with Parducci's (1965) range-frequency theory: Grading reflected a roughly equal compromise between a tendency to assign grades to equal subranges of exam scores (e.g., A's to the top fifth of the range) and a tendency to assign an equal number of scores to each grade (e.g., A's to the top 20% of scores). Individual differences in the relative weighting of these two tendencies were fairly reliable, $r_ttprime$. Although most students followed a roughly equal compromise, a few favored "grading on a straight scale" (equal subranges) and a few "grading on a curve" (equal frequencies). The results of Experiment 2 supported a range-frequency model in which different grades tend to be used with equal frequency over a modified model in which different grades tend to be used with fixed but unequal frequencies.

This paper examines the effects of exclusionary practices on the process of technological change, modeled as a sequence of innovations. The winner of an early innovation may be able to take (possibly costly) actions that effectively exclude its rivals from competition for subsequent innovations. The possibility of exclusion can change the equilibrium time pattern of investments in research from that of the case of no exclusion. Conditions that make such a change most likely are also conditions under which such a change is most likely to reduce the efficiency of the allocation of resources to technological change.

We consider a two-stage R & D then output or price duopoly game in which R & D spills over, so reducing the marginal cost of both the investing firm and its rival. We compare the non-cooperative regime to three collusive regimes: joint venture (collusion on R & D), price fixing (collusion at the price or output stage) and merger (collusion at both stages) and evaluate under what circumstances a collusive regime improves welfare. If spillovers are sufficiently large, all three regimes are beneficial, although mergers are more likely, and price-fixing less likely to produce specific benefits than are joint ventures.