Peanut Butter Patents versus the New Economy: Does the Increased Rate of Patenting Signal More Invention or Just Lower Standards?

The explosion in the patenting rate in the U.S. during the last half of the 1990s is often attributed partly to an apparent decline in examination standards. We estimate a simultaneous equation model accounting for the fact that a decline in examination standards would itself induce an increase in dubious applications. We have a multi-dimensional panel, with data on the application and grant rates and country of origin and destination. We find that a 'loosening' of the grants standard by 1 percent increases applications by 8 percent in the full sample and by 3 percent in the Non-US sample. After accounting for the endogenous application response, the application elasticity of grants is around 0.124 for the full sample and 0.145 for the Non-US one. Countries whose patent applications are more likely to be successful in the US are more likely to be successful in other countries as well. These findings confirm that inventors respond to increased likelihood of success at the patent office by filing more applications, but also confirm earlier findings that the surge in patenting in the US in the last two decades appears to be driven to a significant extent by an increase in the underlying invention rate.