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Innovation-Specific Patent Protection

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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 firstly disentangle its different effects on vertical and horizontal innovation.

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Bibliographic Info

Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 09-A010.

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Length: 33 pages
Date of creation: Oct 2009
Date of revision: 03 Dec 2009
Handle: RePEc:sin:wpaper:09-a010

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Keywords: economic growth; innovation; intellectual property rights;

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Cited by:
  1. Kiedaisch, Christian & Grafenhofer, Dominik, 2013. "Taste for Exclusivity and Intellectual Property Rights," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80017, Verein für Socialpolitik / German Economic Association.
  2. Been-Lon Chen & Angus Chu, 2010. "On R&D spillovers, multiple equilibria and indeterminacy," Journal of Economics, Springer, vol. 100(3), pages 247-263, July.

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