Law and the Boundaries of Technology-Intensive Firms

Abstract

Arrow's disclosure paradox implies that information that is not afforded legal protection cannot be bought or sold on the market. This paper emphasizes the important relationship between the paradox of disclosure and the boundaries of the firm question. Only legally protected inventions, i.e., patented inventions, may be traded; pre-patent stages of the innovation process may not. Consequently, by force of law, rather than by the guidance of economic principle, pre-patent innovation must be carried out within the boundaries of a single firm.