A Reverse Incentive Theory For Patents

The Incentive Theory is the most popular explanation for why the patent system is a good thing for society. According to the Incentive Theory, innovating is inherently risky and expensive and so we need to provide incentives to encourage innovation. Without incentives, no profit-driven company would invest in research and development (R&D), knowing that the output of their R&D could immediately be copied by a company that had not incurred the cost of development.

The most dramatic illustration of this is in the pharmaceutical sector, where the total cost of developing a new product that obtains final approval from the US Food and Drug Administration runs into hundreds of millions of dollars. By comparison, the cost of copying a pharmaceutical product is almost negligible. Without incentives, it would be foolish to even attempt creating a new pharmaceutical product, and society would be worse off. Clearly, some form of incentive is needed for companies to invest