What form of intellectual property rights (IPR) policy contributes to economic growth? Should technological followers be able to license the products of technological leaders? Should a company with a large technological lead receive the same IPR protection as a company with a more limited lead? We develop a general equilibrium framework to investigate these questions. The economy consists of many industries and firms engaged in cumulative (step-by-step) innovation. IPR policy regulates whether followers in an industry can copy the technology of the leader and also how much they have to pay to license past innovations. With full patent protection, followers can catch up to the leader in their industry either by making the same innovation(s) themselves or by making some pre-specified payments to the technological leaders. We prove the existence of a steady-state equilibrium and characterize some of its properties. We then quantitatively investigate the implications of different types of IPR policy on the equilibrium growth rate. The two major results of this exercise are as follows. First, the growth rate in the standard models used in the (growth) literature can be improved significantly by introducing a simple form of licensing. Second, we show that full patent protection is not optimal from the viewpoint of maximizing the growth rate of the economy and that the growth-maximizing policy involves state-dependent IPR protection, providing greater protection to technological leaders that are further ahead than those that are close to their followers. This form of the growth-maximizing policy is a result of the "trickle-down" effect, which implies that providing greater protection to firms that are further ahead of their followers than a certain threshold increases the R&D incentives also for all technological leaders that are less advanced than this threshold.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12775.
Length: Date of creation: Dec 2006 Date of revision: Handle: RePEc:nbr:nberwo:12775
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Find related papers by JEL classification: L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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Reinganum, Jennifer F., .
"Dynamic Games of Innovation,"
Working Papers
287, California Institute of Technology, Division of the Humanities and Social Sciences.
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