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When Do More Patents Reduce R&D?

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  • Robert M. Hunt

Abstract

This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm’s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm’s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms’ patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms’ technologies so that each firm’s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.
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Suggested Citation

  • Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
  • Handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:87-91
    Note: DOI: 10.1257/000282806777212035
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    References listed on IDEAS

    as
    1. James Bessen & Robert M. Hunt, 2007. "An Empirical Look at Software Patents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 157-189, March.
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    9. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
    10. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
    2. Banerjee, Dyuti & Chatterjee, Ishita, 2010. "The impact of piracy on innovation in the presence of technological and market uncertainty," Information Economics and Policy, Elsevier, vol. 22(4), pages 391-397, December.
    3. Arora, Ashish & Ceccagnoli, Marco & Cohen, Wesley M., 2008. "R&D and the patent premium," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1153-1179, September.
    4. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Business School - Economics, University of Glasgow.
    5. Leonard F.S. Wang & Arijit Mukherjee, 2014. "Patent Protection, Innovation and Technology Licensing," Australian Economic Papers, Wiley Blackwell, vol. 53(3-4), pages 245-254, December.
    6. Iain M. Cockburn & Megan J. MacGarvie, 2011. "Entry and Patenting in the Software Industry," Management Science, INFORMS, vol. 57(5), pages 915-933, May.
    7. Gaetan de Rassenfosse & Bruno van Pottelsberghe de la Potterie, 2013. "The Role Of Fees In Patent Systems: Theory And Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 27(4), pages 696-716, September.
    8. repec:bla:jindec:v:65:y:2017:i:1:p:220-234 is not listed on IDEAS
    9. Robert M. Hunt, 2010. "Business Method Patents And U.S. Financial Services," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 322-352, July.
    10. Cohen, Wesley M., 2010. "Fifty Years of Empirical Studies of Innovative Activity and Performance," Handbook of the Economics of Innovation, Elsevier.
    11. Arijit Mukherjee, 2013. "Patent protection under endogenous product differentiation," Discussion Paper Series 2013_06, Department of Economics, Loughborough University, revised Jul 2013.
    12. Jeon, Haejun, 2015. "Patent infringement, litigation, and settlement," Economic Modelling, Elsevier, vol. 51(C), pages 99-111.
    13. Robert M. Hunt, 2007. "Economics and the design of patent systems," Working Papers 07-6, Federal Reserve Bank of Philadelphia.
    14. Silvana Krasteva, 2014. "Imperfect Patent Protection and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 682-708, December.
    15. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.
    16. Gaétan de Rassenfosse & Adam B. Jaffe, 2014. "Are Patent Fees Effective at Weeding out Low-quality Patents?," NBER Working Papers 20785, National Bureau of Economic Research, Inc.
    17. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D In Schumpeterian Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 474-491, September.
    18. Alexandre Almeida & Aurora A.C. Teixeira, 2007. "Does Patenting negatively impact on R&D investment?An international panel data assessment," FEP Working Papers 255, Universidade do Porto, Faculdade de Economia do Porto.
    19. Alexandre Almeida & Aurora A.C. Teixeira, 2008. "One size does not fit all… An economic development perspective on the asymmetric impact of Patents on R&D," FEP Working Papers 292, Universidade do Porto, Faculdade de Economia do Porto.
    20. Iain Clacher, 2010. "National accounting for intangible assets in the knowledge economy," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(2), pages 106-119, May.

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