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Cumulative Innovation, Growth and Welfare-Improving Patent Policy

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  • Davin Chor
  • Edwin L.-C. Lai

Abstract

We construct a tractable general equilibrium model of cumulative innovation and growth, in which new ideas strictly improve upon frontier technologies, and productivity improvements are drawn in a stochastic manner. The presence of positive knowledge spillovers implies that the decentralized equilibrium features an allocation of labor to R&D activity that is strictly lower than the social planner’s benchmark, which suggests a role for patent policy. We focus on a “non-infringing inventive step” requirement, which stipulates the minimum improvement to the best patented technology that a new idea needs to make for it to be patentable and non-infringing. We establish that there exists a finite required inventive step that maximizes the rate of innovation, as well as a separate optimal required inventive step that maximizes welfare, with the former being strictly greater than the latter. These conclusions are robust to allowing for the availability of an additional instrument in the form of patent length policy.

Suggested Citation

  • Davin Chor & Edwin L.-C. Lai, 2013. "Cumulative Innovation, Growth and Welfare-Improving Patent Policy," CESifo Working Paper Series 4407, CESifo Group Munich.
    • Handle: RePEc:ces:ceswps:_4407
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4407.pdf
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Sakakibara, Mariko & Branstetter, Lee, 2001. "Do Stronger Patents Induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 77-100, Spring.
    3. Jesse Perla & Christopher Tonetti, 2014. "Equilibrium Imitation and Growth," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 52-76.
    4. Boldrin,Michele & Levine,David K., 2010. "Against Intellectual Monopoly," Cambridge Books, Cambridge University Press, number 9780521127264.
    5. Costas Arkolakis, 2016. "A Unified Theory of Firm Selection and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 89-155.
    6. Antonio Minniti & Carmelo Parello & Paul Segerstrom, 2013. "A Schumpeterian growth model with random quality improvements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 755-791, March.
    7. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, September.
    8. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March.
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    Cited by:

    1. Auer, Raphael A. & Sauré, Philip, 2017. "Dynamic entry in vertically differentiated markets," Journal of Economic Theory, Elsevier, vol. 167(C), pages 177-205.
    2. Auer, Raphael & Sauré, Philip, 2014. "Spatial Competition in Quality," CEPR Discussion Papers 10027, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    innovation; growth; patent policy;

    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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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