Innovation or Imitation: Some Economic Performance and Social Welfare Policy Perspectives

This paper develops a mathematical model of innovation in technology with two main characteristics. First, it discusses the endogenously made decision on not only how much to innovate, but also, how much to imitate. Second, it demonstrates that the decision to innovate or imitate are not mutually exclusive and a firm can innovate and imitate simultaneously. A mathematical model is presented, and the authors explain the barriers to innovation development and diffusion. The model is further used to investigate the effectiveness of two technology innovation and imitation policies. It is shown that an intellectual property right (IPR) policy will better function if the price of innovation is set to a level lower than the cost of innovation. The concept “superfluous innovation” (innovations whose costs are higher than their benefits) is also proposed and developed through investigating the policy of levying subsidies on innovation.