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Economics of Patents: An Overview, The

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Abstract

In this paper, we review the economic effects of intellectual property rights and specifically address the economics of the patent system. The production and dissemination of new knowledge is fraught with market failures because knowledge is a public good. Patents provide a second-best solution to the resulting appropriability problem. We review the main benefits and costs of the patent system, focusing on the role that patents play in providing incentives for innovation, in promoting the dissemination of knowledge, and in helping technology transfer and commercialization of new technology. From a more normative perspective, we address the questions of what the features of an optimal patent system are and whether the patent system is socially desirable. We examine the problem of the optimal length and scope of patent protection, both for the case of a single innovation and for the richer case of cumulative innovations. Finally, we review the issues related to how the patent system influences the market structure and research and development investments.

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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 02-wp293.

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Date of creation: Feb 2002
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Handle: RePEc:ias:cpaper:02-wp293

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References

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  1. Reinganum, Jennifer R., 1982. "Uncertain Innovation and the Persistence of Monopoly," Working Papers 431, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
  3. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150 National Bureau of Economic Research, Inc.
  4. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  5. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 265-90, October.
  6. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
  7. Scherer, F M, 1972. "Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation," American Economic Review, American Economic Association, vol. 62(3), pages 422-27, June.
  8. Paula E. Stephan, 1996. "The Economics of Science," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1199-1235, September.
  9. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
  10. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
  11. Mazzoleni, Roberto & Nelson, Richard R., 1998. "The benefits and costs of strong patent protection: a contribution to the current debate," Research Policy, Elsevier, vol. 27(3), pages 273-284, July.
  12. David D. Friedman & William M. Landes & Richard A. Posner, 1991. "Some Economics of Trade Secret Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 61-72, Winter.
  13. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. DeBrock, Lawrence M, 1985. "Market Structure, Innovation, and Optimal Patent Life," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 223-44, April.
  15. David, Paul A, 1998. "Common Agency Contracting and the Emergence of "Open Science" Institutions," American Economic Review, American Economic Association, vol. 88(2), pages 15-21, May.
  16. Machlup, Fritz & Penrose, Edith, 1950. "The Patent Controversy in the Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 10(01), pages 1-29, May.
  17. Kamien, Morton I & Schwartz, Nancy L, 1974. "Patent Life and R & D Rivalry," American Economic Review, American Economic Association, vol. 64(1), pages 183-87, March.
  18. Dasgupta, Partha & Maskin, Eric, 1987. "The Simple Economics of Research Portfolios," Economic Journal, Royal Economic Society, vol. 97(387), pages 581-95, September.
  19. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  20. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
  21. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
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Cited by:
  1. Katrin Hussinger, 2006. "Is Silence Golden? Patents Versus Secrecy At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(8), pages 735-752.
  2. Emmanuelle Auriol & Sara Biancini & Rodrigo Paillacar, 2013. "Universal Intellectual Property Rights: Too Much of a Good Thing?," CESifo Working Paper Series 4292, CESifo Group Munich.
  3. Trommetter, M., 2007. "Flexibility in the implementation of intellectual property rights in agricultural biotechnology," Working Papers 200708, Grenoble Applied Economics Laboratory (GAEL).
  4. GianCarlo Moschini, 2003. "Intellectual Property Rights and the World Trade Organization: Retrospect and Prospects," Center for Agricultural and Rural Development (CARD) Publications 03-wp334, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Trommetter, M., 2008. "Intellectual property rights in agricultural and agro-food biotechnologies to 2030 (© OECD International Futures Programme)," Working Papers 200805, Grenoble Applied Economics Laboratory (GAEL).

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