Why Governments Grow “lemons” in the Market for Technology
Abstract: Governments around the world spend an enormous amount of money on R&D. A large part of this investment is wasted, flooding the system with patents that never result in any actual innovation. This effect is especially pronounced in countries with the low level of government accountability. To reconcile the growth of “lemon patents” with the genuine desire of the government to spur innovation, I offer a game-theoretic model, in which the government has a significant stake in technological development and invests in R&D, even if this simultaneously encourages the growth of “lemons”. I illustrate the mechanism by demonstrating the causal impact of Russia’s government policy, which resulted in a simultaneous increase in the number of high-quality patents and a decrease in the share of such patents in the patent pool.
