Article | American Economic Review | March 1994

Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights

by J. Anton and Dennis Yao

Abstract

We analyze the problem faced by a financially weak independent inventor when selling a valuable, but easily imitated, invention for which no property rights exist. The inventor can protect his or her intellectual property by negotiating a contingent contract (with a buyer) prior to revealing the invention or, alternatively, the inventor can reveal the invention and then negotiate with the newly informed buyer. Despite the risk of expropriation, we find that, in equilibrium, an inventor with little wealth can expect to appropriate a sizable share of the market value of the invention by adopting the latter approach.

Keywords: Innovation and Invention; Intellectual Property; Rights; Sales; Contracts; Negotiation;

Citation:

Anton, J., and Dennis Yao. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights." American Economic Review 84, no. 1 (March 1994): 190–209. (Harvard users click here for full text.)