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Does intellectual monopoly stimulate or stifle innovation?

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  • Chu, Angus C.
  • Cozzi, Guido
  • Galli, Silvia

Abstract

This study develops an R&D-based growth model with vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. We analyze the effects of patent protection in the form of blocking patents. We show that patent protection changes the direction of innovation by having asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Calibrating the model and simulating transition dynamics, we find that strengthening the effect of blocking patents stifles vertical innovation and decreases economic growth but increases social welfare due to an increase in horizontal innovation. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patents, it is important to consider their often neglected compositional effects on vertical and horizontal innovation.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 4 ()
Pages: 727-746

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:4:p:727-746

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Economic growth; Innovation; Intellectual property rights;

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References

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Citations

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Cited by:
  1. Cozzi, Guido & Galli, Silvia, 2013. "Sequential R&D and Blocking Patents in the Dynamics of Growth," Economics Working Paper Series 1305, University of St. Gallen, School of Economics and Political Science.
  2. Suen, Richard M.H., 2013. "Research Policy and U.S. Economic Growth," MPRA Paper 49103, University Library of Munich, Germany.
  3. Gurrieri, Antonia Rosa, 2013. "Networking entrepreneurs," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 193-204.
  4. Elie Gray & André Grimaud, 2014. "The Lindahl Equilibrium in Schumpeterian Growth Models: Knowledge Diffusion, Social Value of Innovations and Optimal R&D Incentives," CESifo Working Paper Series 4678, CESifo Group Munich.
  5. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2011. "Status Preference and the Effects of Patent Protection: Theory and Evidence," CEMA Working Papers 588, China Economics and Management Academy, Central University of Finance and Economics.
  6. Chu, Angus C. & Furukawa, Yuichi, 2012. "Patents versus R&D subsidies in a Schumpeterian growth model with endogenous market structure," MPRA Paper 41083, University Library of Munich, Germany, revised Sep 2012.
  7. Gray, Elie & Grimaud, André, 2014. "The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives," IDEI Working Papers 821, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Davis, Lewis S. & Şener, Fuat, 2012. "Private patent protection in the theory of Schumpeterian growth," European Economic Review, Elsevier, vol. 56(7), pages 1446-1460.
  9. Angus Chu & Guido Cozzi & Chih-Hsing Liao, 2013. "Endogenous fertility and human capital in a Schumpeterian growth model," Journal of Population Economics, Springer, vol. 26(1), pages 181-202, January.
  10. Furukawa, Yuichi, 2013. "The struggle to survive in the R&D sector: Implications for innovation and growth," Economics Letters, Elsevier, vol. 121(1), pages 26-29.
  11. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2014. "Stage-dependent intellectual property rights," Journal of Development Economics, Elsevier, vol. 106(C), pages 239-249.
  12. Gray, Elie & Grimaud, André, 2014. "The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives," TSE Working Papers 14-469, Toulouse School of Economics (TSE).
  13. Angus C.Chu & Yuichi Furukawa & Lei Ji, 2013. "Patents RD subsidies and endogenous market structure in a Schumpeterian economy," Documents de Travail de l'OFCE 2013-19, Observatoire Francais des Conjonctures Economiques (OFCE).
  14. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2013. "Theory and Empirics of Stage-Dependent Intellectual Property Rights," Economics Working Paper Series 1306, University of St. Gallen, School of Economics and Political Science.
  15. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2011. "Patent Protection, Financial Development and Economic Growth," CEMA Working Papers 589, China Economics and Management Academy, Central University of Finance and Economics.
  16. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2013. "The Effects of Patent Protection: A Growth Model with Status Preference," CEMA Working Papers 574, China Economics and Management Academy, Central University of Finance and Economics.

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