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The welfare cost of one-size-fit-all patent protection

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  • Chu, Angus C.

Abstract

To analyze the welfare gain from allowing for differentiated patent protection across sectors, this study develops a two-sector quality-ladder growth model in which patent breadth is a policy variable and derives the optimal patent breadth under two policy regimes. We show that (i) the optimal uniform patent breadth is a weighted average of the optimal sector-specific patent breadth, and (ii) the optimal sector-specific patent breadth is larger in the sector that has a larger market size and more technological opportunities. To derive the optimal policy, we allow for an arbitrary path of patent breadth and derive the optimal path by solving a Stackelberg differential game. We find that the optimal path of patent breadth under each regime is stationary, time-consistent and subgame perfect. Finally, we perform a numerical investigation and find that even a moderate degree of asymmetry across sectors can generate a significant welfare cost of uniform patent protection.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21401.

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Date of creation: Sep 2009
Date of revision: Mar 2010
Handle: RePEc:pra:mprapa:21401

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Keywords: economic growth; R&D; uniform patent protection; time-consistent patent policy;

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References

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  1. Li, Chol-Won, 2001. "On the Policy Implications of Endogenous Technological Progress," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(471), pages C164-79, May.
  2. Danyang Xie, 2002. "On Time Inconsistency: A Technical Issue in Stackelberg Differential Games," Macroeconomics, EconWPA 0212004, EconWPA.
  3. Charles I. Jones, . "Growth: With or Without Scale Effects?," Working Papers, Stanford University, Department of Economics 99001, Stanford University, Department of Economics.
  4. Chu, Angus C., 2009. "Effects of Patent Length on R&D: A Quantitative DGE Analysis," MPRA Paper 16918, University Library of Munich, Germany.
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  6. Gene Grossman & Edwin L.-C. Lai, 2002. "International Protection of Intellectual Property," NBER Working Papers 8704, National Bureau of Economic Research, Inc.
  7. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 8904, University of Western Ontario, Department of Economics.
  8. O'Donoghue, Edward & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1951, C.E.P.R. Discussion Papers.
  9. Chu, Angus C., 2007. "Special Interest Politics and Intellectual Property Rights: An Economic Analysis of Strengthening Patent Protection in the Pharmaceutical Industry," MPRA Paper 4349, University Library of Munich, Germany.
  10. Cameron, G., 2000. "R&D and Growth at the Industry Level," Economics Papers 2000-w4, Economics Group, Nuffield College, University of Oxford.
  11. Angus Chu, 2009. "Effects of blocking patents on R&D: a quantitative DGE analysis," Journal of Economic Growth, Springer, Springer, vol. 14(1), pages 55-78, March.
  12. Karp, Larry S. & Lee, In Ho, 2000. "Time-consistent policies," CUDARE Working Paper Series, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy 919, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  14. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521637329.
  15. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  16. Klenow, Peter J., 1996. "Industry innovation: where and why," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 44(1), pages 125-150, June.
  17. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1077-91, December.
  18. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(5), pages 853-873, March.
  19. Cozzi, Guido & Giordani, Paolo E. & Zamparelli, Luca, 2007. "The refoundation of the symmetric equilibrium in Schumpeterian growth models," Journal of Economic Theory, Elsevier, Elsevier, vol. 136(1), pages 788-797, September.
  20. Futagami, Koichi & Iwaisako, Tatsuro, 2007. "Dynamic analysis of patent policy in an endogenous growth model," Journal of Economic Theory, Elsevier, Elsevier, vol. 132(1), pages 306-334, January.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Optimizing patent law design is hard, why not drop it
    by Economic Logician in Economic Logic on 2010-04-19 14:04:00
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Cited by:
  1. Guido Cozzi & Silvia Galli, 2012. "Sequential R&D and Blocking Patents in the Dynamics of Growth," Working Papers 2012_02, Durham University Business School.
  2. Chu, Angus C. & Furukawa, Yuichi, 2012. "Patents versus R&D subsidies in a Schumpeterian growth model with endogenous market structure," MPRA Paper 40469, University Library of Munich, Germany.
  3. Shiyuan Pan & Tailong Li & Heng-fu Zou, 2012. "Patent Protection, Technological Change and Wage Inequality: Theory," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 537, China Economics and Management Academy, Central University of Finance and Economics.
  4. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers, Business School - Economics, University of Glasgow 2009_20, Business School - Economics, University of Glasgow.
  5. Chu, Angus C. & Furukawa, Yuichi, 2011. "Growth and Welfare Effects of Patentability and Knowledge Spillovers of Basic R&D," MPRA Paper 27813, University Library of Munich, Germany.
  6. Chu, Angus C. & Leung, Charles Ka Yui & TANG, C. H. Edward, 2012. "Intellectual property rights, technical progress and the volatility of economic growth," MPRA Paper 38132, University Library of Munich, Germany.
  7. Chu, Angus C. & Pan, Shiyuan & Sun, Minjuan, 2012. "When does elastic labor supply cause an inverted-U effect of patents on innovation?," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 211-213.
  8. Angus C. Chu & Ching-Chong Lai & Chih-Hsing Liao, 2010. "A Tale of Two Growth Engines: The Interactive Effects of Monetary Policy and Intellectual Property Rights," IEAS Working Paper : academic research, Institute of Economics, Academia Sinica, Taipei, Taiwan 10-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  9. Lin, Hwan C., 2013. "Optimal Patent Life in a Variety-Expansion Growth Model," MPRA Paper 49790, University Library of Munich, Germany.
  10. Furukawa, Yuichi, 2013. "The struggle to survive in the R&D sector: Implications for innovation and growth," Economics Letters, Elsevier, Elsevier, vol. 121(1), pages 26-29.
  11. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2012. "From China with love: Effects of the Chinese economy on skill-biased technical change in the US," MPRA Paper 40555, University Library of Munich, Germany.
  12. Angus Chu & Guido Cozzi & Yuichi Furukawa, . "Effects of Economic Development in China on Skill-Biased Technical Change in the US," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  13. Chu, Angus C. & Cozzi, Guido, 2011. "Cultural preference on fertility and the long-run growth effects of intellectual property rights," MPRA Paper 29059, University Library of Munich, Germany.

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