I model an innovation game in which firms can choose to be leaders or followers. Internal finance leads to a stalemate … in which each firm wants to free-ride on the others' experimentation costs. Therefore, no innovation occurs. When instead … firms compete in the capital markets to finance innovation (e.g., in the case of venture capital or IPOs) there is an …

What is the best way to reward innovation? While prizes avoid deadweight loss, intellectual property selects high … social surplus projects. Optimal innovation policy thus trades off the ex-ante screening benefit and the ex-post distortion … and market size of the innovation. The appropriate degree of market power is never full monopoly pricing and is determined …

When innovation is cumulative, early patentees hold claims against later innovators. Then potential hold-up may cause …