A PYMNTS Company

Appropriating the Returns from Industrial Research and Development (1950)(reprint)

 |  January 22, 2014

Dec 20, 2013

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.