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The welfare cost of one-size-fits-all patent protection

  • Chu, Angus C.

To analyze the welfare gain from allowing for differentiated patent protection across sectors, this study develops a two-sector quality-ladder growth model in which patent breadth is a policy variable and derives optimal patent breadth under two patent regimes. We show that (a) uniform optimal patent breadth is a weighted average of sector-specific optimal patent breadth and (b) sector-specific optimal patent breadth is larger in the sector that has a larger market size and more technological opportunities. To derive the optimal policy, we allow for an arbitrary path of patent breadth and derive the optimal path by solving a Stackelberg differential game. We find that the optimal path of patent breadth under each patent regime is stationary, time-consistent and subgame perfect. Finally, we perform a numerical investigation and find that even a moderate degree of asymmetry across sectors can generate a significant welfare cost of uniform patent protection.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 6 (June)
Pages: 876-890

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:876-890
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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