1.2.5 Government involvement in general scientific research has been justified on the grounds that advances in knowledge are public goods—once produced, information can be shared at virtually no cost. A new production technology in an industry could be made available to all firms, reducing costs of production, driving down price, and benefiting the public. The patent system, however, allows private producers of “new knowledge” to exclude others from enjoying the benefits of that knowledge. Inventors would have little incentive to produce new knowledge if there was no possibility of profiting from their inventions.

If one company holds exclusive rights to an advanced production process, it produces at lower cost but can use the exclusion to acquire monopoly power and charge the monopoly price.

a. On balance, is the patent system a good or bad thing?

Explain.

b. Is government involvement in scientific research a good idea? Discuss.