ABSTRACT
Research is a messy enterprise, fraught with dead ends and missed opportunities. When research is successful, intellectual property law offers market-driven rewards. Unsuccessful research, however, is treated largely as a waste of resources – an unlucky gamble in the horse race of innovation. But failed research investments are not valueless. They often generate useful information that can increase the odds of success on other research efforts. If disclosed, negative research results can prevent others from pursuing duplicative, fruitless lines of inquiry. And yet, intellectual property law does not have a coherent approach to harvest the social value of the information generated by failed research efforts. Unlike with successful research investments, firms have no easy opportunity to capture the value of information generated by their unsuccessful research. As a result, their discoveries of what ‘does not work’ are not optimally disclosed. In this paper, we develop a simple sequential-stage model to identify the shortcomings of such a one-sided reward system. We explore possible legal and institutional solutions to the problem, including trade secrets, research subsidies, and patent-like ‘propertization’ mechanisms. Our results shed light on the potential and limits of these solutions and other contractual arrangements (ranging from joint ventures to exchanges of trade secrets) in aligning private and social incentives for research.
Guerra, Alice and Parisi, Francesco and Sawicki, Andres, Rewarding Failure (February 14, 2024).
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