The “Market for Errors” and the Commercialization of Ideas: A Bargaining Approach

For the last two hundred years, neo-classical economics has recognised only two factors of production: labour and capital. Knowledge, productivity, education, and intellectual capital were all regarded as exogenous factors, falling outside the system. Knowledge has been first considered by the “New Growth Theory” based on Romer’s work who has attempted to deal with the causes of long-term growth.
Following from the work of economists such as Joseph Schumpeter, Robert Solow and others, Romer has proposed a change to the neo-classical model by seeing technology (and the knowledge on which it is based) as an intrinsic part of the economic system. Knowledge has become the third factor of production in leading economies.
But economic growth is driven by the accumulation of knowledge and nowadays by the terms “knowledge economy” it is meant an economy in which the generation and exploitation of knowledge play the predominant part in the creation of wealth.
Earning monopoly rents on discoveries is important in providing an incentive for companies to invest in R&D for technological innovation as Romer noted, while traditional economics considered "perfect competition" as the ideal. But sustained GDP growth is driven by a sufficient human capital. Human capital is the formal education, training and on-the-job learning embodied in the workforce.
Unlike capital and labour, knowledge is traditionally considered a public good with the features of “non-rivalrous” and “non-excludable”. Once knowledge is discovered and made public, there is zero marginal cost to sharing it with more users. The creator of knowledge finds it hard to prevent others from using it. Instruments such as trade secrets protection and patents, copyright, and trademarks provide the creator with some protection. However the most recent approach regarding National Innovation Systems criticize the public nature of knowledge and embodies it into a global context.
According to new growth economics a country's capacity to take advantage of the knowledge economy depends on how quickly it can become a "learning economy'. Learning means not only using new technologies to access global knowledge, it also means using them to communicate with other people about innovation. In the "learning economy" individuals, firms, and countries will be able to create wealth in proportion to their capacity to learn and share innovation.
At the level of firms learning must be continuous. Organisational learning is the process by which organisations acquire tacit knowledge and experience. Such knowledge is unlikely to be available in codified form, so it cannot be acquired by formal education and training. Instead it requires a continuous cycle of discovery, dissemination, and the emergence of shared understandings. Successful firms are giving priority to the need to build a "learning capacity" within the organisation.
To become knowledge driven, companies must learn how to recognise changes in intellectual capital in the worth of their business and ultimately in their balance sheets. A firm's intellectual capital - employees' knowledge, brainpower, know-how, and processes, as well as their ability to continuously improve those processes - is a source of competitive advantage. But there is now considerable evidence that the intangible component of the value of high technology and service firms far outweighs the tangible values of its physical assets, such as buildings or equipment The difference is its intellectual capital.
Knowledge plays an important role both in a macroeconomic context, for the long-term growth, and in a microeconomic framework, being a variable within a firm. In any case it is seen as a leading factor for innovation.
It is quite hard, and sometimes a controversial the organization of the whole process of innovation, since many intangible factors and processes are involved and each single process has also different features. A general description of this process is provided in the present work starting from Imagination, Incubation, Demonstration, Promotion and Sustain.
The aim of this work is deriving the condition according to which a “Market for Ideas” or in particular a “Market for Errors” may exist in other words if Ideas can be commercialized. Its existence is constrained, on one side, on the will of the seller to disclose at least part of its discover, and on the other on the behaviour of the buyer.
It will be shown that generally there are very low probabilities for this market to exist since there are no incentives for both the buyer and the seller to negotiate and behave fairly.