Government can base rewards around sales data --- prevents flood of useless innovation

As we stressed in the analysis, the government’s knowledge about the social value of innovations, embodied in its probability distribution over demand curves, is important to the performance of the reward system and to that of the optional reward system (even though the latter dominates patent no matter how poor the government’s knowledge). In fact, one supposes that the government could obtain significant information about demand. Most obviously, the government can base its rewards on sales data, which should be relatively easy to obtain; thus, the version of rewards discussed in Section IIH is the most relevant one to consider. (Note that if rewards are based on sales, the government should not fear that it would be flooded by claimants for rewards with inferior or meaningless innovations—they would not generate products that would pass the market test.) The government could also attempt to measure more about the demand curve than sales at the market price; it could estimate demand elasticities and undertake surveys to determine the character and frequency of use of, for example, computer software musical recordings, and cinematic and television productions. As events unfold and information flows to the government, it could appropriately supplement rewards, perhaps on an annual basis. In past proposals for reward systems, payments based on sales and other information that the government receives have sometimes been discussed.37 It would be a gross mistake to envision the reward as having to be premised on the government’s estimate of valuation at the time an innovation is registered.