“Patent Buyouts: A Mechanism for Encouraging Innovation.” Michael Kremer

This is another clear example of low-hanging policy fruit. If implemented well, it has the potential to speed up the rate of innovation and progress.

Short summary

  • Patents were originally created to incentivise innovation. However, they also have a lot of downside implications that may deter innovation:

    – They don’t always provide the best incentives for original research because inventors cannot fully capture the consumer surplus available in the market.
    – Inventors don’t receive the benefits from spillovers to other new ideas.
    – Patents lead to distortions in the areas in which companies innovate. This is because it may not make economic sense to research areas where a lot of patents exist already.
    – Firms may engage in wasteful spending on things like the reverse-engineering of competitors patents.
    Thus, the problems associated with patents may hinder innovation and progress
  • Kremer suggests a new mechanism, the ‘patent buyout’. The government steps in and buys patents, which are then freely distributed to the public, who can enjoy the benefits associated with the patent. Additionally, companies are now free to make improvements upon the original patent because they are no longer constrained by having to negotiate with the original patent holder to get rights/access to it
  • The patent buyout was used in 1839, where the French government bought the Daguerreotype process of photography and put the process into the public domain. After this patent buyout, Daguerreotype photography spread across other countries and was subject to a number of improvements.

For a longer summary/post, see here.