BPEA | 1987 No. 3: Microeconomics

Appropriating the Returns from Industrial Research and Development

Discussants: Zvi Griliches and
Zvi Griliches Harvard University and National Bureau of Economic Research
Richard Gilbert
Richard Gilbert University of California at Berkelev

1987, No. 3

To HAVE the incentive to undertake research and development, a firm
must be able to appropriate returns sufficient to make the investment
worthwhile. The benefits consumers derive from an innovation, however,
are increased if competitors can imitate and improve on the
innovation to ensure its availability on favorable terms. Patent law seeks
to resolve this tension between incentives for innovation and widespread
diffusion of benefits. A patent confers, in theory, perfect appropriability
(monopoly of the invention) for a limited time in return for a public disclosure that ensures, again in theory, widespread diffusion of benefits
when the patent expires.