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Creative Destruction and Optimal Patent Life in a Variety-Expanding Growth Model

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  • Hwan C. Lin

    () (Department of Economics, Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, USA)

Abstract

This article presents more channels through which the optimal patent life is determined in a R&D-based endogenous growth model with an expanding variety of consumer goods. It features an endogenous hazard rate at which patented firms' monopoly profits are “creatively destructed” by arrivals of newer varieties, among other things. A patent's effective life is, therefore, endogenized and less than its legal life. This model is calibrated to a global economy with a set of baseline parameter values. The optimal patent length is computed with the algorithm of Golden Search Section, ranging from 17 to 19 years. With the creative-destruction hazard, the world needs a longer patent term to maximize social welfare but with the prevalence of research congestion, the world needs a shorter patent term. However, if the world's aggregate welfare appreciates varieties of goods in a way strong enough, the optimal patent term can surprisingly extend beyond 1000 years!

Suggested Citation

  • Hwan C. Lin, 2015. "Creative Destruction and Optimal Patent Life in a Variety-Expanding Growth Model," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 803-828, January.
  • Handle: RePEc:sej:ancoec:v:81:3:y:2015:p:803-828
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    File URL: http://dx.doi.org/10.4284/0038-4038-2013.078
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    Citations

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    Cited by:

    1. Lin, Hwan C., 2016. "The switch from patents to state-dependent prizes for technological innovation," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 193-223.
    2. repec:eee:ecmode:v:79:y:2019:i:c:p:86-97 is not listed on IDEAS
    3. repec:kap:compec:v:51:y:2018:i:1:d:10.1007_s10614-016-9597-9 is not listed on IDEAS
    4. Chu, Angus C. & Shen, Guobing & Zhang, Xun, 2017. "Imports and Intellectual Property Rights on Innovation in China," MPRA Paper 81706, University Library of Munich, Germany.
    5. repec:red:issued:17-109 is not listed on IDEAS
    6. repec:eee:jmacro:v:57:y:2018:i:c:p:110-121 is not listed on IDEAS
    7. Tatsuro Iwaisako, 2017. "Welfare Effects of Patent Protection in a Semi-Endogenous Growth Model," Discussion Papers in Economics and Business 17-27, Osaka University, Graduate School of Economics.
    8. Angus Chu & Guido Cozzi, 2018. "Effects of Patents versus R&D subsidies on Income Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 68-84, July.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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