Amortizing Securities as a Pareto-Efficient Reward Mechanism

Abstract

I propose a novel reward mechanism to promote monopoly-free innovations. Unlike the world’s patent systems, this mechanism is designed to reward any innovator with a government-issued innovation-backed amortizing security rather than with monopoly power, whereas the innovator must agree to place an otherwise exclusive innovation in the public domain so as to render a perfectly competitive market. Amortizing securities of this sort are tradeable and whoever holds them can receive a stream of time-contingent payouts from the government. Funded by a simple head tax, these payouts represent intertemporal prizes determined by a predetermined payout ratio and the innovative product’s overall market sales in a risky world. The proposed reward mechanism is Pareto-efficient and can be more feasible than the oft-discussed non-intertemporal cash prizes [4].