Weak Intellectual Property Rights, Research Spillovers, and the Incentive to Innovate

We investigate the conditions for the desirability of exclusive intellectual property rights for innovators as opposed to weak rights, allowing for some degree of imitation and ex post competition. The comparison between the two alternatives reduces to a specific “ratio test,” which suggests that strong, exclusive IP rights are preferable when competition from potential imitators is weak, the innovation attracts large R&D investments, and research spillovers are small.