Patents might incentivize invention but they do not guarantee firms will invest in projects that maximize social utility. We model how risk-neutral firms’ ability to obtain substantial private returns on marginal new technologies causes them to “reach for mediocrity” by investing in socially-suboptimal projects, even in the presence of competition and new entrants. Focusing primarily on pharmaceutical innovation, we analyze various policy interventions to solve this underinvestment problem. In particular, we describe a new approach to patents – a value based patent system, which ties patent protection to the underlying invention’s social value – and show how it incentivizes socially-optimal innovation.
Scholarly Commons Citation
Le, Son and Sukhatme, Neel U., "Reaching for Mediocrity: Competition and Stagnation in Pharmaceutical Innovation" (2018). Georgetown Law Faculty Publications and Other Works. 2152.