Add to ORKGAbstract. An extensive empirical literature indicates that returns from innovation are appropriated primarily via mechanisms other than formal intellectual property rights – and that ‘imitation ’ is itself a costly activity. However theory has tended tended to assume the pure nonrivalry of ‘ideas ’ with its implication that in the absence of intellec-tual property rights innovation (and welfare) is zero. This paper introduces a model of innovation based on imperfect competition in which imitation is costly. We demonstrate that in the absence of intellectual property rights a significant proportion of innovation may still occur, and that welfare may be higher in the absence of intellectual property rights even though less innovation occurs