Growth and welfare effects of patent depth and breadth in an overlapping generation model

Nordhaus (1969) argues that extending patents brings static losses in reducing competition and dynamic gains in stimulating Research and Development (R&D), and finds that the optimal protection must balance these two effects. However, there are differences in the depth and breadth of patent protection. Increasing patent depth improves the quality of each R&D, while increasing patent breadth improves the pricing power of R&D firms. Although both may bring dynamic gains that stimulate R&D, increasing patent depth does not reduce competition among R&D firms, but attracts more resources to invest in R&D and crowd out private consumption; only expanding patent breadth can reduce competition among R&D firms, in turn, weakens private consumption. Furthermore, increasing patent breadth leads to larger intergenerational wealth differences, whereas increasing patent depth does not affect generational wealth differences. As long as there is a chance of life-and-death, increasing patent depth has a better impact on the economy and society than increasing breadth.