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Fragmented Property Rights and Incentives for R&D

Department of Economics and Management, Norwegian College of Fishery Science, University of Tromsø, N-9037 Tromsø, Norway
Social Science Research Center Berlin (WZB), D-10785 Berlin, Germany and Department of Business and Economics, Free University of Berlin, 14195 Berlin, Germany
derek.clark{at}nfh.uit.no
kkonrad{at}wz-berlin.de

Where product innovation requires several complementary patents, fragmented property rights can limit firms' willingness to invest in R&D. We consider the research intensity in multiple simultaneous R&D contests and how it depends on whether firms already hold relevant patents as well as the availability of an option to invent around. A measure of technological uncertainty is also analyzed. The multiple patent product involves an important hold-up problem that can reduce the overall R&D effort. Invent-around options moderate this problem. We also analyze targeted equilibria in which the aim of R&D can be to hold up a rival.

Key Words: fragmented property rights; patents; contests; hold-up; R&D; inventing around; innovation
History: Received: October 12, 2006;