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Patents And Growth In Olg Economy With Physical Capital

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  • Diwakar, Bharat
  • Sorek, Gilad
  • Stern, Michael

Abstract

We study the implications of patents in an overlapping generations model with horizontal innovation of differentiated physical capital. We show that within this demographic structure of finitely lived agents, weakening patent protection generates two contradicting effects on innovation and growth. Weakening patent protection lowers the (average) price of patented machines, thereby increasing machine utilization, output, aggregate saving, and investment. However, a higher demand for machines shifts investment away from the R&D activity aimed at inventing new machine varieties toward the formation of physical capital. The growth-maximizing level of patent protection is incomplete. Shortening patent length is more effective than loosening patent breadth in spurring growth, due to an additional positive effect on growth, that is decreasing investment in old patents. Welfare can be improved by weakening patent protection beyond the growth-maximizing level.

Suggested Citation

  • Diwakar, Bharat & Sorek, Gilad & Stern, Michael, 2021. "Patents And Growth In Olg Economy With Physical Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 25(2), pages 489-508, March.
    • Handle: RePEc:cup:macdyn:v:25:y:2021:i:2:p:489-508_7
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    Cited by:

    1. Leandro M. Meller, 2022. "Patent Length and Breadth as Policy Instruments: A Systematic Review of Recent Contributions to the Theory of Optimal Patent Design," Working Papers 192, Red Nacional de Investigadores en Economía (RedNIE).
    2. Rudra Narayan Kushwaha & Taniya Ghosh, 2023. "The Effects of population growth on patents and economic growth dynamics," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-05, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Yuta Nakabo & Ken Tabata, 2019. "An inverted-U effect of patents on economic growth in an overlapping generations model," Discussion Paper Series 191, School of Economics, Kwansei Gakuin University.

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