The impact of the tradeoff between incentives and spillovers on intellectual property rights system

Abstract

This paper builds a model for evaluating the influence of innovation spillovers on innovation activity and benefits, based on the tradeoff between innovation incentives and spillovers. Some major findings are: 1) The decline in innovation activity caused by spillovers is partially offset by the beneficially distributive externalities from spillovers; 2) The relationship between total innovation benefit and spillover ratio takes on approximately inverted U-shaped, so do workers' benefit and innovators' benefit. Spillover ratios corresponding to workers' and innovators' benefit maximization constitute a Pareto optimal ratio interval of spillover. Moreover, the ratio corresponding to total innovation benefit maximization is within the interval; 3) The shape of total innovation benefit curve depends on the nature of innovation and intellectual property rights system. In addition, the smoother the total innovation benefit curve is, the wider the Pareto optimal ratio interval of spillover becomes. This study sharpens our understanding on innovation spillover effects. In practice, it sheds light on design and implementation of intellectual property rights system.