EEP143 Lectures 8 and 9 Final with postcards

EEP143 Lectures 8 and 9 Final with postcards - Lectures 8...

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EEP143 Lecture8 and 9 Wright 07 Lectures 8 and 9 How Innovation Incentives Work (contd.) Simple One-Stage Model: Competition Ref: Scotchmer, S. Innovation and Incentives , Chapter 4 • Outline: – More on the tradeoffs of IP protection and policy levers – Introduce the Open Access invention model • Fishery example – Patent Races and patent life – Patent Breadth as a policy lever
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EEP143 Lecture8 and 9 Wright 07 Introduction Stages of sophistication of welfare analysis of patent protection: 1. Maximize social surplus by giving access to all at marginal cost of distribution E.g. AIDS drugs for poor countries 2. “The stronger is patent protection, the better: it encourages more invention” 3. Strong patent protection increases incentives, but also increases deadweight loss Nordhaus 4. Is stronger incentive always better even if it causes no deadweight loss in product market? Patent races and duplication
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EEP143 Lecture8 and 9 Wright 07 More on Patent Life as a Policy Lever What is optimal patent life? Two contrasting cases: 1. One firm monopolizes invention market (Nordhaus) Race: more than one potential inventors can compete.
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EEP143 Lecture8 and 9 Wright 07 What is optimal patent life? Two contrasting cases: 1. Nordhaus (last lecture): Model appropriate for case of a scarce (unique) idea or exclusive “prospect” or right to invent) a cost-reducing process innovation 2. Patent Race Model
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EEP143 Lecture8 and 9 Wright 07 Nordhaus Model (last lecture) Patent Length as a Policy Lever Nordhaus (1969) addresses the tradeoff between increasing incentives and increasing DWL. A monopolist inventor receives revenue with present value of π vT . So the higher is T the higher the profits for the inventor and the greater the equilibrium cost reduction achieved by innovation. But there are 2 disadvantages: 1. The higher the cost reduction the higher the ratio of DWL to B. 2. The patentee charges producers a royalty or license fee that fills the gap between the new marginal cost c’ and the market price (=c) for the life of the patent. Higher T increases the net present value of DWL.
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EEP143 Lecture8 and 9 Wright 07 Nordhaus Model: Innovator Decision $ R* research resources R sR At this R* slopes are equal: profit present value is maximized BT R T α =
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EEP143 Lecture8 and 9 Wright 07 What is optimal patent life? 2. Race (idea known by >1 firm) Race: Arises where ideas are not scarce. The problem is to avoid over-entry or under- rewards
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EEP143 Lecture8 and 9 Wright 07 Open Access Resource • Anyone can potentially use an open access resource such as a fish in a lake, or a trip on a crowded highway • What’s the difference from a public good? – Rivalness: if I use the good, then nobody else can use it
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EEP143 Lecture8 and 9 Wright 07 Racing for IPR • Not so relevant for copyright?
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This note was uploaded on 08/01/2008 for the course ECON 143 taught by Professor Wright during the Fall '07 term at University of California, Berkeley.

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EEP143 Lectures 8 and 9 Final with postcards - Lectures 8...

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