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Rationales of IP for innovation
Why is it relevant to consider the rationales of IP for innovation?
For economists IP serves several purposes—incentivizing inventions, facilitating access to knowledge, allowing the use of knowledge assets in market transactions, and so on. If these benefits outweigh the costs, it justifies the use of IP protection (Arrow, 1962; Landes and Posner, 1989). A key consequence of this "functionalist" view of IP is that IP systems might require modifications to better fulfill their role. This document will elaborate on the ways IP support innovation performance, hence explaining the rationales of IP protection.
What are the rationales of IP for innovation?
IP deals with the challenges posed by the specificities of knowledge, as opposed to tangible assets such as physical capital and labour. Knowledge stands apart from other factors of production in that it is non-rival and non-excludable, as well as cumulative over time (see Economics of knowledge).
IP can support innovation by the following means:
- Creating incentives for inventions (see Incentives for invention).
- Facilitating access to knowledge and inventions (see Access to knowledge and inventions).
- Facilitating participation in international competition and trade (see IP and international competitiveness and trade).
- Helping address societal challenges (see IP to address social challenges)
- Addressing information asymmetries (see IP to address information asymmetries) also to help improve opportunities for innovators to access finance (see IP and markets for finance).
What are the implications for IP and innovation policies?
The various ways in which IP systems can contribute to innovation underlie their relevance for innovation policy. However, this linkage has to be evaluated in connection with other innovation policies so as to use IP instruments in a way that best exploits their relative strengths (see Characteristics of IP policies relative to other innovation policies).
For IP to effectively contribute to innovation, requires the following conditions. The organisation of IP systems must ensure legal quality (see Organisation of IP systems). The existence of markets for IP and opportunities to obtain finance based on IP can further increase potential returns from innovation. The level of market competition is critical (see IP, markets and diffusion). Moreover, contributions will depend on integrating a wider set of users of the productive sector and their fields of activity (see Fields of IP use).
References
- Akerlof, George A. (1970), “The market for 'lemons': Quality uncertainty and the market mechanism”, The Quarterly Journal of Economics Vol. 84/3, pp. 488–500.
- Arrow, K.J. (1962). “Economic welfare and the allocation of resources for invention”. In The Rate and Direction of Inventive Activity: Economic and Social Factors, pp. 609–625. Princeton University Press, Princeton, NJ.

Thematic Reports

- Executive Summary (Data-Driven Innovation: Big Data for Growth and Well-Being), 2015
- Executive summary (National Intellectual Property Systems, Innovation and Economic Development: With perspectives on Colombia and Indonesia), 2014
- Innovation, intellectual property rights and development: Background (National Intellectual Property Systems, Innovation and Economic Development: With perspectives on Colombia and Indonesia), 2014
- Executive Summary (The OECD Innovation Strategy: Getting a Head Start on Tomorrow), 2010
- Access to finance for SMEs (Dimension 6): Facilitate SMEs' access to finance and develop a legal and business environment supportive to timely payments in commercial transactions (Small Business Act Principle 6) (SME Policy Index: Eastern Partner Cou..., 2012
What Countries are Doing
- Processes and contributions of IP systems to innovation
- Metrics and evaluation for IPR
- Aspects and availability of patent data
- Patent data - Characteristics of innovative activities
- Patent data - The performance of firms, regions and countries
- Patent data - Emerging technologies
- Patent data - The role of universities in technological development
- Patent data - The performance and mobility of researchers
- Patent data - The geography of invention
- Patent data - Knowledge diffusion and technological change
- Patent data - Globalisation of research
- Patent data - Patenting strategies of firms
- Patent data - Patent valuation methods
- Metrics - IP standards, regulations and legal systems
- IP users
- IP, markets and diffusion
- Fields of IP use
- Organisation of IP systems
- Connecting IP to innovation policies