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Perfectly competitive innovation

By Michele Boldrin, David and K. Levine

Abstract

ABSTRACT. We construct a competitive model of innovation and growth under constant returns to scale. Previous models of growth under constant returns cannot model technological innovation. Current models of endogenous innovation rely on the interplay between increasing returns and monopolistic markets. We argue that ideas have value only insofar as they are embodied in goods or people, and that there is no economic justification for the common assumption that ideas are transmitted through costless “spillovers. ” In the absence of unpriced spillovers, we argue that competitive equilibrium without copyrights and patents fails to attain the first best only because ideas are indivisible, not because of increasing returns. Moreover, while it may be that indivisibility results in socially valuable ideas failing to be produced, when new ideas are built on old ideas, government grants of intellectual monopoly may lead to even less innovation than under competition. The theory of the competitive provision of innovations we build is important both for understanding why in many current and historical markets there has been thriving innovation in the absence of copyrights and patents, and also for understanding why, in the presence of the rent-seeking behavior induced by government grants of monopoly, intellectual property in the form of copyrights and patents may be socially undesirable

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.198.3878
Provided by: CiteSeerX
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