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Optimal Patent Renewals

  • Francesca Cornelli
  • Mark Schankerman
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    When firms have different R&D productivities, it may be welfare increasing to differentiate patent lives across inventions. The reason is that the uniform patent life provides excessive incentives to do R&D to the low productivity firms and insufficient incentives to high productivity firms. Such a differentiated scheme is implementable through renewal fees, which endogenously determine an optimal pattern of patent life-spans and show how it depends on key features of the economic environment, such as the degree of heterogeneity in R&D productivity across firms, the ability of patentees to appropriate the potentital rents generated by R&D and the learning process about the value of innovation. The potential welfare gains associated with optimal renewal schemes are illustrated through simulation analysis.

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    File URL: http://sticerd.lse.ac.uk/dps/ei/ei13.pdf
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    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number 13.

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    Date of creation: Jan 1996
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    Handle: RePEc:cep:stieip:13
    Contact details of provider: Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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    1. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
    2. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    3. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    4. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    6. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and compliance strategies," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 85-125, October.
    7. Bronwyn H. Hall, 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," NBER Working Papers 4096, National Bureau of Economic Research, Inc.
    8. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
    9. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1986. "Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality," NBER Working Papers 2002, National Bureau of Economic Research, Inc.
    10. Townsend, Robert M, 1982. "Optimal Multiperiod Contracts and the Gain from Enduring Relationships under Private Information," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1166-86, December.
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