IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Does intellectual monopoly stimulate or stifle innovation?

  • Chu, Angus C.
  • Cozzi, Guido
  • Galli, Silvia

This study develops an R&D-based growth model with vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. We analyze the effects of patent protection in the form of blocking patents. We show that patent protection changes the direction of innovation by having asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Calibrating the model and simulating transition dynamics, we find that strengthening the effect of blocking patents stifles vertical innovation and decreases economic growth but increases social welfare due to an increase in horizontal innovation. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patents, it is important to consider their often neglected compositional effects on vertical and horizontal innovation.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0014292112000177
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 4 ()
Pages: 727-746

as
in new window

Handle: RePEc:eee:eecrev:v:56:y:2012:i:4:p:727-746
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Grossman, Gene & Lai, Edwin, 2002. "International Protection of Intellectual Property," CEPR Discussion Papers 3118, C.E.P.R. Discussion Papers.
  2. Adam B. Jaffe, 1999. "The U.S. Patent System in Transition: Policy Innovation and the Innovation Process," NBER Working Papers 7280, National Bureau of Economic Research, Inc.
  3. Peretto, Pietro F, 1998. " Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
  4. Horowitz, Andrew W & Lai, Edwin L-C, 1996. "Patent Length and the Rate of Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 785-801, November.
  5. John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
  6. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  7. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  8. Cozzi Guido, 2007. "The Arrow Effect under Competitive R&D," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, January.
  9. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  10. Thompson, Peter, 1996. "Technological Opportunity and the Growth of Knowledge: A Schumpeterian Approach to Measurement," Journal of Evolutionary Economics, Springer, vol. 6(1), pages 77-97, February.
  11. Ted O'Donoghue & Josef Zweim¸ller, 2004. "Patents in a Model of Endogenous Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 81-123, 03.
  12. Ryo Horii & Tatsuro Iwaisako, 2005. "Economic Growth with Imperfect Protection of Intellectual Property Rights," Discussion Papers in Economics and Business 05-23, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  13. Amon, Christian & Gersbach, Hans & Sorger, Gerhard, 2010. "Hierarchical Growth: Basic and Applied Research," CEPR Discussion Papers 7950, C.E.P.R. Discussion Papers.
  14. Cozzi, Guido & Galli, Silvia, 2011. "Upstream innovation protection: common law evolution and the dynamics of wage inequality," MPRA Paper 31902, University Library of Munich, Germany.
  15. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
  16. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78 National Bureau of Economic Research, Inc.
  17. Pietro Peretto & Sjak Smulders, 2002. "Technological Distance, Growth And Scale Effects," Economic Journal, Royal Economic Society, vol. 112(481), pages 603-624, July.
  18. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
  19. Daron Acemoglu & Ufuk Akcigit, 2006. "State-Dependent Intellectual Property Rights Policy," NBER Working Papers 12775, National Bureau of Economic Research, Inc.
  20. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  21. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  22. Carl Shapiro, 2003. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Law and Economics 0303005, EconWPA.
  23. Petra Moser, 2005. "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs," American Economic Review, American Economic Association, vol. 95(4), pages 1214-1236, September.
  24. Ginarte, Juan C. & Park, Walter G., 1997. "Determinants of patent rights: A cross-national study," Research Policy, Elsevier, vol. 26(3), pages 283-301, October.
  25. 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.
  26. Ilya Segal & Michael Whinston, 2005. "Antitrust in Innovative Industries," NBER Working Papers 11525, National Bureau of Economic Research, Inc.
  27. Charles I. Jones, . "Growth: With or Without Scale Effects?," Working Papers 99001, Stanford University, Department of Economics.
  28. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
  29. James Bessen & Michael J. Meurer, 2008. "Introduction to Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk
    [Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk]
    ," Introductory Chapters, Princeton University Press.
  30. Chu, Angus C. & Pan, Shiyuan, 2010. "The Escape-Infringement Effect of Blocking Patents on Innovation and Economic Growth," MPRA Paper 27233, University Library of Munich, Germany.
  31. 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.
  32. Eicher, Theo & García-Peñalosa, Cecilia, 2008. "Endogenous strength of intellectual property rights: Implications for economic development and growth," European Economic Review, Elsevier, vol. 52(2), pages 237-258, February.
  33. Futagami, Koichi & Iwaisako, Tatsuro, 2007. "Dynamic analysis of patent policy in an endogenous growth model," Journal of Economic Theory, Elsevier, vol. 132(1), pages 306-334, January.
  34. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
  35. Elias Dinopoulos & Peter Thompson, 1999. "Scale effects in Schumpeterian models of economic growth," Journal of Evolutionary Economics, Springer, vol. 9(2), pages 157-185.
  36. Michele Boldrin & David K Levine, 2008. "Against Intellectual Monopoly," Levine's Bibliography 122247000000002371, UCLA Department of Economics.
  37. Chu, Angus C., 2007. "Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth," MPRA Paper 3910, University Library of Munich, Germany.
  38. Nancy T. Gallini, 2002. "The Economics of Patents: Lessons from Recent U.S. Patent Reform," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 131-154, Spring.
  39. Cozzi, Guido, 2001. " Inventing or Spying? Implications for Growth," Journal of Economic Growth, Springer, vol. 6(1), pages 55-77, March.
  40. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December.
  41. Gilles Koléda, 2004. "Patents' novelty requirement and endogenous growth," Revue d'économie politique, Dalloz, vol. 114(2), pages 201-221.
  42. Park, Walter G., 2008. "International patent protection: 1960-2005," Research Policy, Elsevier, vol. 37(4), pages 761-766, May.
  43. Daron Acemoglu & Ufuk Akcigit, 2012. "Intellectual Property Rights Policy, Competition And Innovation," Journal of the European Economic Association, European Economic Association, vol. 10(1), pages 1-42, 02.
  44. Aghion, Philippe & Howitt, Peter, 1996. " Research and Development in the Growth Process," Journal of Economic Growth, Springer, vol. 1(1), pages 49-73, March.
  45. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-85, May.
  46. Cozzi, Guido, 2005. "Animal spirits and the composition of innovation," European Economic Review, Elsevier, vol. 49(3), pages 627-637, April.
  47. Furukawa, Yuichi, 2007. "The protection of intellectual property rights and endogenous growth: Is stronger always better?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3644-3670, November.
  48. Peter Howitt, 1999. "Steady Endogenous Growth with Population and R & D Inputs Growing," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 715-730, August.
  49. Mukesh Eswaran & Nancy Gallini, 1996. "Patent Policy and the Direction of Technological Change," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 722-746, Winter.
  50. Li, Chol-Won, 2001. "On the Policy Implications of Endogenous Technological Progress," Economic Journal, Royal Economic Society, vol. 111(471), pages C164-79, May.
  51. Cozzi, Guido & Spinesi, Luca, 2006. "Intellectual Appropriability, Product Differentiation, And Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 10(01), pages 39-55, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:56:y:2012:i:4:p:727-746. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.