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Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it

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  • Scotchmer, Suzanne
Abstract
We investigate optimal rewards in an R&D model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We investigate the optimal policy when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."

Suggested Citation

  • Scotchmer, Suzanne, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it," Competition Policy Center, Working Paper Series qt2p5543p0, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:compol:qt2p5543p0
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    References listed on IDEAS

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    1. Helen Weeds, 2002. "Strategic Delay in a Real Options Model of R&D Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 729-747.
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    9. Ted O'Donoghue & Suzanne Scotchmer & Jacques‐François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, March.
    10. Erkal, Nisvan, 2005. "The decision to patent, cumulative innovation, and optimal policy," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 535-562, September.
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    14. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
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    Cited by:

    1. Suzanne Scotchmer, 2010. "Openness, Open Source, and the Veil of Ignorance," American Economic Review, American Economic Association, vol. 100(2), pages 165-171, May.
    2. Ajay Agrawal & Joshua S. Gans & Scott Stern, 2021. "Enabling Entrepreneurial Choice," Management Science, INFORMS, vol. 67(9), pages 5510-5524, September.
    3. Zonglai Kou & Patrick Rey & Tong Wang, 2013. "Non-Obviousness and Screening," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 700-732, September.
    4. Suzanne Scotchmer, 2013. "Patents in the University: Priming the Pump and Crowding Out," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 817-844, September.
    5. Poblete, Joaquín & Spulber, Daniel, 2017. "Managing innovation: Optimal incentive contracts for delegated R&D with double moral hazard," European Economic Review, Elsevier, vol. 95(C), pages 38-61.
    6. Zhang, Tianle, 2012. "Patenting in the shadow of independent discoveries by rivals," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 41-49.
    7. Joshua S. Gans, 2014. "Negotiating for the Market," NBER Working Papers 20559, National Bureau of Economic Research, Inc.
    8. Brennan, Timothy J. & Macauley, Molly & Whitefoot, Kate, 2011. "Prizes, Patents, and Technology Procurement: A Proposed Analytical Framework," RFF Working Paper Series dp-11-21-rev, Resources for the Future.
    9. Suzanne Scotchmer, 2011. "Comment on "Funding Scientific Knowledge: Selection, Disclosure and the Public-Private Portfolio"," NBER Chapters, in: The Rate and Direction of Inventive Activity Revisited, pages 103-105, National Bureau of Economic Research, Inc.
    10. Bergner, Sören Martin & Bräutigam, Rainer & Evers, Maria Theresia & Spengel, Christoph, 2017. "The use of SME tax incentives in the European Union," ZEW Discussion Papers 17-006, ZEW - Leibniz Centre for European Economic Research.
    11. Nikulainen, Tuomo, 2013. "Generating commercial ideas in Finnish universities. The role of interdisciplinarity and networking," ETLA Working Papers 9, The Research Institute of the Finnish Economy.
    12. Christian Riis & Xianwen Shi, 2012. "Sequential Innovation and Optimal Patent Design," Working Papers tecipa-447, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    Scarce ideas; imagination; innovation; real options; search models; rewards to R unknown hazard rate; Social and Behavioral Sciences; Business; Technology and Innovation;
    All these keywords.

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L00 - Industrial Organization - - General - - - General
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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