Suboptimal environment


A quickly-produced suboptimal solution to a problem is often better than an optimal one that takes a long time to produce. I hereby approve this quote until we have a better, improved one.

Do patents create a suboptimal innovation culture?

This study found that a free market solution greatly outperforms a patent monopoly solution where the “first” provider gets a monopoly. The research was led by economist Peter Bossaerts and a team of others — and it made a point that won’t surprise anyone who’s studied the economics of monopolies.

Patents tend to function just like any other monopoly system: it shrinks the overall market, decreases net social benefit, provides monstrously excess rewards to a single provider and harms everyone else. In fact, the research found that the patent system created a massive disincentive for many people to participate in the very process, even if their contributions could have been quite helpful in speeding along the innovation.

Notwithstanding such remarks, I still believe that patents help substantiate the growth of IP but critically, a time-limit should be placed on the patent, allowing a collective catch-up once the protection expires. This works well in the pharmaceutical industry. Observing the rights to exclusive (but time-restricted rights) is a price worth paying for the up-front investment in innovation in the first place.

In The Paradox of Asset Pricing, Peter wrote about how a leading financial researcher argues forcefully that the empirical record is weak at best. He undertakes the most thorough, technically sound investigation in many years into the scientific character of the pricing of financial assets. He probes this conundrum by modeling a decidedly volatile phenomenon that, he says, the world of finance has forgotten in its enthusiasm for the efficient markets hypothesis–speculation!

Buffett would be enjoy this one I suspect.

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