Patent buyout structures ignore the value of the cumulative innovation process

It’s great to see Stiglitz raising alternatives to patents for financing research, but I would disagree with the prize for patent buyouts that he proposes as being the best alternative. I have always preferred a system of direct upfront funding, which could be done through private firms operating on long-term contracts. In response to a number of requests, here is the argument in brief. (‘s a little longer discussion.) First, I doubt very much that the prizes will typically go to the right person. As we know, and Stiglitz writes in his piece, innovation is inevitably a cumulative process. If we allow people to get patents and then have them bought up for a prize and put in the public domain, I have little confidence that we will typically give our prize to the person or company that had the key innovation. There may well be a situation where a great innovation brought research 99 percent of the way to the final product, but the main innovator was blind to the last simple step. A patent buyout system is likely to reward the last simple step, not the innovation that got us 99 percent of the way there.