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The problem of trading patents in organized markets: part 2: Pricing an dynamic gains from trade through impersonal exchange of linear contacts on patents, an experimental study
KTH, School of Architecture and the Built Environment (ABE), Transport and Economics.
(English)Manuscript (preprint) (Other academic)
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-24084OAI: diva2:343289
QC 20100813Available from: 2010-08-13 Created: 2010-08-13 Last updated: 2010-08-13Bibliographically approved
In thesis
1. From Personal to Impersonal Exchange in Ideas: Experimental Study of Trade in Organized Markets for Patents
Open this publication in new window or tab >>From Personal to Impersonal Exchange in Ideas: Experimental Study of Trade in Organized Markets for Patents
2009 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The patent system has developed over a period of over 500 years. The initial motivation was a desire to import privately held technology to advance economic development, offering excluding and transferrable rights through licensing to “inventors” for the disclosure and perfection of their “contrivance” (invention). These rights have gradually developed to internationally accepted private property rights on technology and are today in many wayssimilar to physical assets, establishing, since 1883, the basis for an international system for trade in technology in its own rights.

The thesis is a dual study of contract and mechanism design for experimental trading with patents. Experimental economics is used as a method to gather data on behavior, varying environmental and institutional parameters. An informal price theory is developed and tested.

The experimental research adds to the static analysis literature by using a dynamic analysis in a behaviorally rich experimental system of specialized agents and competitive demand-side bidding on a linear contract, the “patent product.” The microeconomic system has primary and secondary markets, traders, and a linear contract on patents with limitedvalidity and uncertain values.

The main results show that risks are shifted away from invention to innovation through demand-side bidding, including traders, creating incentives for increased technologycompetition and economic growth. When a linear contract – fixed fee plus royalty – is used totrade the patents, the fixed fee approaches the blocking value of the patent, in support of theproposed price theory (blocking formally similar to insurance). Such shift in risk bearing maybe beneficial for developing nations in leveraging their human capital through education andincreasing global market access through the patent system. The competitive bidding increasesthe dynamic market efficiency considerably, clearly indicating the dynamic value of the patentsystem. Market efficiency is however still low compared to other typical auction markets,suggesting further experiments to increase efficiency before it will be possible to provide helpful advice about what to do in the field. Dynamic gains increase with increased demandsidebidding and high patent validity. Tentative policy proposals are made for patent,development and innovation policy.

The experiments have been carried out at the Interdisciplinary Center for Economic Science, George Mason University, USA.

Place, publisher, year, edition, pages
Stockholm: KTH, 2009. x, 47 p.
Trita-TEC-PHD, ISSN 1653-4468 ; 09:006
experimental economics, patent markets, patents, mechanism design, linear contracts, institutional design, patent system design, economic system design, development policy
National Category
Economics and Business
urn:nbn:se:kth:diva-11395 (URN)978-91-85539-46-8 (ISBN)
Public defence
2009-11-20, F3, Lindstedtsvägen 26, KTH, Stockholm, 10:00 (English)
QC 20100813Available from: 2009-11-05 Created: 2009-11-05 Last updated: 2010-09-08Bibliographically approved

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