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

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  • Chu, Angus C.

Abstract

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

Keywords: Economic growth R&D Uniform patent protection Time-consistent patent policy;

Other versions of this item:

Find related papers by JEL classification:
  • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
  • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
  • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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  1. O'Donoghue, Edward & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," CEPR Discussion Papers 1951, C.E.P.R. Discussion Papers.
  2. Karp, Larry S. & Lee, In Ho, 2000. "Time-consistent policies," CUDARE Working Paper Series 919, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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  6. Klenow, Peter J., 1996. "Industry innovation: where and why," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 125-150, June.
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  9. Cameron, G., 2000. "R&D and Growth at the Industry Level," Economics Papers 2000-w4, Economics Group, Nuffield College, University of Oxford.
  10. Xie, Danyang, 1997. "On Time Inconsistency: A Technical Issue in Stackelberg Differential Games," Journal of Economic Theory, Elsevier, vol. 76(2), pages 412-430, October.
  11. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  12. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  13. Chu, Angus C., 2007. "Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth," MPRA Paper 3910, University Library of Munich, Germany.
  14. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  15. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, November.
  16. Charles I. Jones, 1999. "Growth: With or Without Scale Effects?," American Economic Review, American Economic Association, vol. 89(2), pages 139-144, May.
  17. Chu, Angus C., 2009. "Effects of Patent Length on R&D: A Quantitative DGE Analysis," MPRA Paper 16918, University Library of Munich, Germany.
  18. Cozzi, Guido & Giordani, Paolo E. & Zamparelli, Luca, 2007. "The refoundation of the symmetric equilibrium in Schumpeterian growth models," Journal of Economic Theory, Elsevier, vol. 136(1), pages 788-797, September.
  19. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Optimizing patent law design is hard, why not drop it
    by Economic Logician in Economic Logic on 2010-04-19 14:04:00
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