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Would global patent protection be too weak without international coordination?

  • Lai, Edwin L.-C.
  • Yan, Isabel K.M.

In the standard model with free trade and social-welfare-maximizing governments à la Grossman and Lai (2004), cross-border positive policy externalities result in countries choosing a combination of patent strengths that is weaker than optimal from a global perspective. This paper introduces three new features to the analysis: trade and FDI barriers, firm heterogeneity and political economy considerations in setting patent policies. Based on calibration, we find that there would be global under-protection of patent rights when there is no international policy coordination. The empirical fact that firm revenues follow a fat-tailed distribution implies that the barriers to exploit inventions internationally are quite low, despite the fact that only a small fraction of firms sell overseas and an even smaller fraction of firms carry out FDI as a result of trade barriers. Furthermore, requiring all countries to harmonize their patent standards with the equilibrium standard of the most innovative country (the US) does not lead to global over-protection of patent rights.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 1 ()
Pages: 42-54

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Handle: RePEc:eee:inecon:v:89:y:2013:i:1:p:42-54
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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