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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 that features both vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. Specifically, we analyze the growth and welfare effects of patent protection in the form of profit division between sequential innovators along the quality ladder. We show that patent protection has asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Maximizing the incentives for vertical (horizontal) innovation requires a profit-division rule that assigns the entire flow profit to the entrant (incumbent) of a quality ladder. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patent protection, it is important to disentangle its different effects on vertical and horizontal innovation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29061.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:29061

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Keywords: economic growth; innovation; intellectual property rights;

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Citations

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Cited by:
  1. Angus Chu & Guido Cozzi & Chih-Hsing Liao, 2013. "Endogenous fertility and human capital in a Schumpeterian growth model," Journal of Population Economics, Springer, Springer, vol. 26(1), pages 181-202, January.
  2. Guido Cozzi & Silvia Galli, 2012. "Sequential R&D and Blocking Patents in the Dynamics of Growth," Working Papers 2012_02, Durham University Business School.
  3. 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, Institut d'Économie Industrielle (IDEI), Toulouse 821, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2014. "Stage-dependent intellectual property rights," Journal of Development Economics, Elsevier, Elsevier, vol. 106(C), pages 239-249.
  5. Furukawa, Yuichi, 2013. "The Struggle to Survive in the R&D Sector: Implications for Innovation and Growth," MPRA Paper 47728, University Library of Munich, Germany.
  6. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2011. "Status Preference and the Effects of Patent Protection: Theory and Evidence," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 588, China Economics and Management Academy, Central University of Finance and Economics.
  7. 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, Toulouse School of Economics (TSE) 14-469, Toulouse School of Economics (TSE).
  8. Suen, Richard M.H., 2013. "Research Policy and U.S. Economic Growth," MPRA Paper 49103, University Library of Munich, Germany.
  9. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2013. "The Effects of Patent Protection: A Growth Model with Status Preference," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 574, China Economics and Management Academy, Central University of Finance and Economics.
  10. 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.
  11. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2011. "Patent Protection, Financial Development and Economic Growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 589, China Economics and Management Academy, Central University of Finance and Economics.
  12. 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.
  13. Davis, Lewis S. & Şener, Fuat, 2012. "Private patent protection in the theory of Schumpeterian growth," European Economic Review, Elsevier, Elsevier, vol. 56(7), pages 1446-1460.
  14. 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, Observatoire Francais des Conjonctures Economiques (OFCE) 2013-19, Observatoire Francais des Conjonctures Economiques (OFCE).
  15. 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.
  16. Gurrieri, Antonia Rosa, 2013. "Networking entrepreneurs," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 47(C), pages 193-204.

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