Allocation Of Resources For Invention Research Articles

Coordination of Inventions and Innovations Through Patent Markets with Prices

This article examines the coordination of inventor, trader, and innovator decisions through a market in contracts on patents with prices, focusing on the willingness to search (WTS) for new and uncertain patentable technology, using a controlled laboratory experiment. Typically an implicit hierarchical approach, i.e., coordinating inventor and innovator decisions in a single firm, is assumed or used in analyzing these relationships, in particular in Arrow (1962) where allocation of resources for invention is discussed under neoclassical conditions of perfect information and competitive commodity (not technology) markets. Schumpeter also assumes a hierarchy as coordinating mechanism, as entrepreneurial firms disrupt incumbents (1934) or intrapreneurs create disruptive product and service innovations within firms ( 1942) treating technology as an exogenous force. In this analysis, coordination takes place between specialized agents through a design market based on the principles and practices of real world patent systems. WTS is compared between three institutional designs with different demand side bidding language, in environments with “weak” and “strong” patents in a 3 × 2 design. Technology “tastes” is here a learning process through prices (“price signals”) and can be altered (discovered) by the inventor agent within a searchable area. The results indicate that WTS appears more sensitive to mechanisms (institutional design) than patent validity (environment) in this dynamic economic system. This main finding thus suggests that policy efforts ought to be placed on institutional mechanisms together with environment such as enforcement, where the mechanisms with richer demand-side bidding language appear to matter more than enforcement in explaining WTS, i.e., risk taking. Regarding economic performance, patent validity was (naturally) of major importance, but (surprisingly) no significant effect of institutions (at least long run). These results may provide elements to expand economic theory of the patent system when it comes to treatment of risk.

Apresentação: Kenneth J. Arrow - Economic Welfare and the Allocation of Resources for Invention

O trabalho Economic welfare and the allocation of resources for invention, publicado em 1959 pelo economista laureado com Nobel, Kenneth Arrow, da Rand Corporation, e republicado em um livro editado por Richard Nelson em 1962, sobre o ritmo e a direção da atividade inventiva, é um marco para a literatura microeconômica de crescimento e desenvolvimento econômico. Da chamada teoria dos contratos – dos contratos com informação assimétrica aos contratos incompletos – à teoria neoschumpeteriana e de crescimento endógeno, a contribuição deste trabalho e do artigo do mesmo autor sobre aprendizado (learning by doing) de 1962 é fundamental por localizar a atividade inventiva no contexto das decisões econômicas, envolvendo formas organizacionais, financiamento da atividade de inovação e suas implicações para a análise do bem-estar.

Information and intellectual property: the global challenges

The paper analyses the contribution of 'golden papers' - seminal works whose ideas remain as fresh and relevant today as when they were first published decades ago - and which continue to dominate academic discourse among successive generations of scholars. The authors analyse why two works written within an industrial development context: The simple economics of basic scientific research, by Richard Nelson (1959) and Kenneth Arrows Economic Welfare and the Allocation of Resources for Invention (1962), are so relevant in today’s knowledge-driven economic paradigm. Focusing on the papers’ application to current global policy debates on information/knowledge and intellectual property, they argue that while the context has changed the essential nature of innovation - driven by widespread access to the ability to replicate and improve - remains the same. Hence a focus on endogenous innovation policy is as relevant today as it was 50 years ago.

Patents and data-sharing in public science

Richard Nelson's The Simple Economics of Basic Scientific Research (1959) and Kenneth Arrow's Economic Welfare and the Allocation of Resources for Invention (1962) presented the basic analytical tools still used to understand the patent system. Two subsequent changes--one primarily legal and the other primarily technological--represent a sufficient departure from the prior state of the world as to call for ongoing re-examination of some old assumptions about the economics of R&D. First, an increase over time in the appropriability (and appropriation) of basic research results through the patent system raises new questions about the role of government funding. Second, the revolution in information technology (IT) and information networks has had reverberations outside the law of intellectual property in the evolving norms of the scientific community regarding data-sharing. This article examines these changes with particular attention to their impact on biomedical research, an area in which the patent system is generally thought to be particularly important to the incentives of innovators. Copyright 2006, Oxford University Press.

The value of innovation: The interaction of competition, R&D and IP

This paper analyses market valuations of UK companies using a new data set of their R&D and IP activities (1989–2002). In contrast to previous studies, the analysis is conducted at the sectoral-level, where the sectors are based on the technological classification originating from Pavitt [Pavitt, K., 1984. Sectoral patterns of technical change. Research Policy 13, 343–373]. The first main result is that the valuation of R&D varies substantially across these sectors. Another important result is that, on average, firms that receive only UK patents tend to have no significant market premium. In direct contrast, patenting through the European Patent Office does raise market value, as does the registration of trade marks in the UK for most sectors. To explore these variations the paper links competitive conditions with the market valuation of innovation. Using profit persistence as a measure of competitive pressure, we find that the sectors that are the most competitive have the lowest market valuation of R&D. Furthermore, within the most competitive sector (‘science based’ manufacturing), firms with larger market shares (an inverse indicator of competitive pressure) also have higher R&D valuations, as well as some positive return to UK patents. We conclude that this evidence supports Schumpeter by finding higher returns to innovation in less than fully competitive markets and contradicts Arrow [Arrow, K., 1962. Economic welfare and the allocation of resources for invention. In: Nelson, R. (Ed.), The Rate and Direction of Inventive Activity. Princeton University Press, Princeton], who argued that, with the existence of IP rights, competitive market structure provides higher incentives to innovate.

Market structure, innovation and vertical product differentiation

We reassess Arrow's (1962) [Economic Welfare and the Allocation of Resources for Invention, in NBER, The Rate and Direction of Innovative Activity (Princeton University Press, Princeton NJ)] results concerning the effect of market structure on the returns from process innovation. Here we consider product innovations that are vertically differentiated from older products, in the sense of Shaked and Sutton (1982) (Relaxing Price Competition through Product Differentiation, Review of Economic Studies 49, 3–13.), Shaked and Sutton (1983) (Natural Oligopolies, Econometrica 51, 1469–1484.). Competition and monopoly in the old product market provide identical returns to innovation when (i) the monopolist is protected from new product entry, and (ii) innovation is non-drastic, in the sense that the monopolist supplies positive quantities of both old and new products. If the monopolist can be threatened with entry, monopoly provides strictly greater incentives. Welfare may be greater under monopoly when innovation is valuable.

Monetarism and Income Controls: A Review

Arrow, K.J. (1962) 'Economic Welfare and the Allocation of Resources for Invention,' in The Rate and Direction ofInventive Activity: Economic and Social Factors, National Bureau of Economic Research (Princeton: Princeton University Press) Demsetz, H. (1969) 'Information and Efficiency: Another Viewpoint,' Journal ofLaw and Economics, 12:1-22. Economic Council of Canada (197 ) Report on Intellectual and Industrial Property (Ottawa: Information Canada)' Firestone, O.J. (I971) Economic Implications of Patents (Ottawa: University of Ottawa Press (social science series) Hindley, B.V. (I971) The Economic Theory ofPatents, Copyrights, andRegistered Industrial Designs, study prepared for Economic Council of Canada (Ottawa: Economic Council of Canada) Machlup, F. (1958) 'An Economic Review of the Patent System,' Patent Studies no. 15, Sub-Committee on Patents, Trademarks and Copyrights of the Committee on the Judiciary, United States Senate, 85th Congress, Second Session. McQueen, D.L. (1975) 'Learning, the Multinational Corporation and the Further Development of Developed Economies,' in Ariga, M., ed., International Conference on International Economy and Competition Policy (Tokyo: Council of Tokyo Conference on International Economy and Competition Policy) Penrose, E.T. (I951) The Economics of the International Patent System (Baltimore: The Johns Hopkins Press) Restrictive Trade Practices Commission (1963)Report Concerning the Manufacture, Distribution and Sale ofDrugs (Ottawa: Queen's Printer) Special Committee of the House of Commons on Drug Costs and Prices (Harley Committee) (1967)Second (Final) Report, Session 1966-67 (Ottawa: Queen's Printer)