Jeremy Jackson, assistant professor of agribusiness and applied economics, presented the paper, "Dynamic Technological Innovation With Dual Quality Ladders," at the Association for Public Economic Theory meeting at Indiana University, Bloomington, on June 3.
The paper was co-written with Jason Smith, from the finance department at the University of Kentucky.
The authors developed a dynamic game theoretic model of innovation whereby intellectual property rights allow the product of one firm to be licensed for use in the research activities of another competing firm. Firms have an incentive to sell a license for research use as it increases immediate profits. However, selling the license to a competitor also increases the probability that the competitor will have a technological innovation, which will hurt profitability in the future. Jackson and Smith show that in equilibrium, research licenses will be priced so that firms purchase fewer licenses than what is socially optimal.