INVENTIVE RIVALRY AND SOCIAL EFFICIENCY

This thesis examines the effect of rivalry on research and development activity. Inventions and innovations are, essentially, new information and therefore subject to the well-known problem of appropriability. As such, concern over the efficient allocation of resources toward technological innovation is warranted. The economic literature in this area has been extensive however, two main thrusts present themselves. First, investigations of social control mechanisms to mitigate the inefficiency problem have examined government intervention in the form of subsidies, awards, and patent protection. Secondly, many authors have recognized the inefficiency but have examined the relative degree of this misallocation under different market structures.Chapter two examines the most prevalent social control mechanism: patent protection. It focuses upon the question of optimal patent life under differing degrees of competition in the inventive market. A two step process of invention-innovation is specified the first step is the 'race' for the patent and the second is the post patent-receipt innovation. Additionally, the degree of rivalry is modeled as an endogenous variable determined in part by the duration of patent protection. It is found that the socially optimal patent life is shorter in a competitive invention market than in a monopolistic invention market, a result counter to previous findings.Chapter three investigates the timing of innovations under conditions of growing technological opportunities. As time passes, scientific knowledge increases and such factors are modeled as a growth in the available benefits from any given research and development project size. Delay leads to an augmented benefit function at the cost of foregone revenue in the present period. Derivation of the socially optimal introduction time from efficiency criteria permits comparison of the relative desirability of a competitive and monopolistic invention markets. The results show that while a competitive invention market will introduce prior to a monopolistic inventor, ceteris paribus, the socially optimal introduction time may be prior to both, later than both, or later than the competitive firm's introduction date but earlier than the monopolists. Whereas economists traditionally consider a competitive market structure as superior to monopolistic structure, the results show this may be incorrect in innovation markets.In the first chapter a detailed presentation of the literature on invention and innovation discusses the framework of the research and development process to be used in this thesis. Additionally, in its role as an introductory chapter, it indicates the direction of the analysis undertaken.