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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 the 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

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31019.

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Date of creation: Nov 2010
Date of revision: May 2011
Handle: RePEc:pra:mprapa:31019

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Keywords: economic growth; innovation; intellectual property rights;

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Guido Cozzi & Silvia Galli, 2012. "Sequential R&D and Blocking Patents in the Dynamics of Growth," Working Papers, Durham University Business School 2012_02, Durham University Business School.
  4. Richard M. H. Suen, 2013. "Research Policy and U.S. Economic Growth," Working papers, University of Connecticut, Department of Economics 2013-18, University of Connecticut, Department of Economics.
  5. 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.
  6. 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).
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2013. "Theory and Empirics of Stage-Dependent Intellectual Property Rights," Economics Working Paper Series, University of St. Gallen, School of Economics and Political Science 1306, University of St. Gallen, School of Economics and Political Science.
  14. 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.
  15. 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.
  16. 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).

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