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Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights

James J. Anton and Dennis A. Yao

American Economic Review March 84(1): 190-209, 1994

Abstract: We analyze the problem faced by a financially weak independent inventor when selling a valuable, but easily imitated, invention for which no property rights exist. The inventor can protect his or her intellectual property by negotiating a contingent contract (with a buyer) prior to revealing the invention or, alternatively, the inventor can reveal the invention and then negotiate with the newly informed buyer. Despite the risk of expropriation, we find that, in equilibrium, an inventor with little wealth can expect to appropriate a sizable share of the market value of the invention by adopting the latter approach. (JEL, L13, O31, D23)