EEP 143 Lecture 7 final

EEP 143 Lecture 7 final - EEP 143 Lecture 7 How Innovation...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
EEP143 Lecture 7 Wright 07 EEP 143 Lecture 7 How Innovation Incentives Work: 1. Patent for a Single Innovator •O u t l i n e : – Introduction to the efficiency tradeoffs involved in IP protection for the case of a single inventor • The tradeoff between increasing incentives and increasing DWL was first pointed out by Nordhaus (1969 ) – Patent Length as a policy lever – Next lecture: Patents for competitive inventors
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EEP143 Lecture 7 Wright 07 Patent Length as a Policy Lever • Patents protect an innovation for a limited time. • We evaluate effects of a patent as net present values of constant flows until end of patent life • Remember discounted time T is: () 0 1 1 1 1 , where 0 is patent life (1 ) rt r t t Te d t e r r τ −− = == ≅≥ + (See Scotchmer 2004 p.59)
Background image of page 2
EEP143 Lecture 7 Wright 07 Patent Length as a Policy Lever • The higher is discounted patent life T the higher the present value of profits for the monopolist • The larger is T the larger the incentives to the innovator • The larger is T the larger the present value of the deadweight loss of the patent monopoly • This tradeoff between increasing incentives and increasing DWL was first modeled by Nordhaus (1969)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EEP143 Lecture 7 Wright 07 Nordhaus Model: • Model with only one inventor who can produce an invention that lowers the marginal and average cost of production of a consumer good • Demand for the good each period is linear: Q = A – b P , where A>0, b>0
Background image of page 4
EEP143 Lecture 7 Wright 07 Nordhaus Model: • The initial marginal and average cost of producing the consumer good is c 0. • Research resources R cost s per unit, and are all spent at time t=0 .
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EEP143 Lecture 7 Wright 07 Nordhaus Model: • Research resources R cost s per unit, and are all spent at time t=0 .
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 32

EEP 143 Lecture 7 final - EEP 143 Lecture 7 How Innovation...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online