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Extending the basic model of two-stage cumulative innovation with asymmetric information to include 'Experimentation' by second-stage firms, the authors find that the costs of a strong (versus weak) Intellectual Property (IP) regime may be substantially increased. In addition, these costs increase as experimentation becomes cheaper and as the differential between high and low value second-stage innovations grows, with the result that a weak IP regime is more likely to be optimal. Thus, technological change which reduces the cost of encountering and trialing new 'Ideas' implies a reduction in the socially optimal level of IP rights such as patent and copyright.
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