Standards and the Incentives for Innovation

[This version of the “version group” adds new content (including additional respondents, more descriptive information from and about the respondents, and more discussion of the method) to the earlier SSRN version at 'http://ssrn.com/abstract=2240940' http://ssrn.com/abstract=2240940.] We develop a new survey-based method for assessing the effects of standards on innovative investment and its private and social value in a market equilibrium setting. Our method relies on the informed opinions of industrial respondents; this paper explains our model and illustrates it with the responses from a small, trial set of respondents. Parameterized with the responses of industrial respondents to the survey, the model can describe the differences in effects of standards for different types of firms and for different types of industrial research, and it can describe the net effects caused by the impact of standards on intellectual property (IP) protection, using the industrial responses to answer the question of how the opposing effects from changes in IP protection on balance affect innovative investments. For our trial group of respondents, the net effects of standards for IP protection are positive, increasing innovative investments and increasing their private and social value