A partnership is a coalition that divides its output equally. We show that when partnerships can form freely, a stable or “core” partition into partnerships always exists and is generically unique. When people differ in ability, the equal-sharing constraint inefficiently limits the size of partnerships. We give conditions under which partnerships containing abler people will be larger, and show that if the population is replicated, partnerships may become more or less homogeneous, depending on an elasticity condition. We also examine when the equal-sharing inefficiency vanishes in the limit.

In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator’s patent protection and/or by permitting cooperative agreements between the initial innovators and later innovators. We investigate the policy that is more effective at ensuring the first innovator earns a large share of profit from the second-generation product it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.

Received March 9, 1997; revised March 14, 1999

A long-standing conjecture is that winner-take-all games such as patent races lead to the survival of risk-takers and the extinction of risk-averters. In many species a winner-take-all game determines the males’ right to reproduce, and the same argument suggests that males will evolve to be risk-takers. Psychological and sociological evidence buttresses the argument that males are more risk-taking than females. Using an evolutionary model of preference-formation, we investigate to what extent evolution leads to risk-taking in winner-take-all environments.

Journal of Economic Literature Classification Numbers: C7, D8.

A partnership is a coalition that divides its output equally. We show that when partnerships can form freely, a stable or “core” partition into partnerships always exists and is generically unique. When people differ in ability, the equal-sharing constraint inefficiently limits the size of partnerships. We give conditions under which partnerships containing abler people will be larger, and show that if the population is replicated, partnerships may become more or less homogeneous, depending on an elasticity condition. We also examine when the equal-sharing inefficiency vanishes in the limit.

In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator’s patent protection and/or by permitting cooperative agreements between the initial innovators and later innovators. We investigate the policy that is more effective at ensuring the first innovator earns a large share of profit from the second-generation product it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.

We investigate how liability rules and property rules protect intellectual property. Infringement might not be deterred under any of the enforcement regimes available. However, counterintuitively, a credible threat of infringement can actually benefit the patentholder. We compare the two doctrines of damages, lost profit (lost royalty) and unjust enrichment, and argue that unjust enrichment protects the patentholder better than lost royalty in the case of proprietary research tools. Both can be superior to a property rule, depending on how much delay is permitted before infringement is enjoined. For other proprietary products (end-user products, cost-reducing innovations), these conclusions can be reversed.

We investigate how liability rules and property rules protect intellectual property. Infringement might not be deterred under any of the enforcement regimes available. However, counterintuitively, a credible threat of infringement can actually benefit the patentholder. We compare the two doctrines of damages, lost profit (lost royalty) and unjust enrichment, and argue that unjust enrichment protects the patentholder better than lost royalty in the case of proprietary research tools. Both can be superior to a property rule, depending on how much delay is permitted before infringement is enjoined. For other proprietary products (end-user products, cost-reducing innovations), these conclusions can be reversed.

In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator’s patent protection and/or by permitting cooperative agreements between the initial innovators and later innovators. We investigate the policy that is more effective at ensuring the first innovator earns a large share of profit from the second-generation product it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.

In active investment climates where firms sequentially improve each other’s products, a patent can terminate either because it expires or because a noninfringing innovation displaces its product in the market. We define the length of time until one of these happens as the effective patent life, and show how it depends on patent breadth. We distinguish lagging breadth, which protects against imitation, from leading breadth, which protects against new improved products. We compare two types of patent policy with leading breadth: (1) patents are finite but very broad, so that the effective life of a patent coincides with its statutory life, and (2) patents are long but narrow, so that the effective life of a patent ends when a better product replaces it. The former policy improves the diffusion of new products, but the latter has lower R&D costs.