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From patent prices to innovation prizes (Or, Prizes for innovation: what will it cost?) Bart Verspagen (Eindhoven University of Technology, and UNU Merit) (based on joint work with Alfonso Gambardella & Dietmar Harhoff) My background • Economics of technological change – patents • Patval Survey – A new approach to measuring the value of patents – Yields a direct estimate of patent value (whereas previous methods were indirect) – Use to say something about the costs of a prize system Estimating the costs of a prize system • "What would be the minimum price (prize) that the patent holder would have accepted to transfer all atent rights, at the time of grant of the patent, assuming all current knowledge about the patent was available?" • Respondents were inventors • See our paper that compares these estimates to others available, and estimates the determinants of patent value From patent prices to prizes • I assume that a prize system means that the government would buy all patents at the Patval price, and put them in the public domain – This would make the innovations available in competition, and hence avoid dead-weight loss • I estimate what the additional tax burden would be to finance this system • I would argue that this provides at least an estimate of the order of magnitude of the costs of a prize system for innovations that are now not implemented (patented), e.g., neglected diseases The patent premium • Arora, Ceccagnoli & Cohen: even without a patent, the innovation has a value, the patent raises this value (=patent premium) • Patent premium = difference between payoff with patent (monopoly) and using the innovation in a (more) competitive environment • Our Patval question asks for the total value, including patent premium How high is the patent premium? • Arora, Ceccagnoli & Cohen: – Average • 1.66 – 1.86 (1.66) • 1.99 – 2.45 (2.22) – Pharma • 1.73 / 2.29 The patent value distribution, 1993-97 3500 9000 8000 3000 2500 DE 6000 2000 5000 1500 4000 3000 1000 frequency (total) frequency (countries) 7000 ES FR IT NL UK Tot 2000 500 1000 0 0 15 65 200 650 2000 6500 20000 65000 200000 300000 Value interval (means, 1000 euro) What does it cost to buy all these patents (in % of 1997 GDP)? DE ES FR IT NL UK Tot All 0.4 0.1 0.4 0.5 0.9 1.0 0.5 Appl. 0.2 0.1 0.1 0.2 0.4 0.4 0.2 Health 0.01 0.02 0.01 0.01 0.07 0.08 0.03 Health -appl. 0.01 0.01 0.004 0.003 0.04 0.05 0.01