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Cumulative Innovation, Growth and Welfare-Improving Patent Policy

  • Davin Chor
  • Edwin L.-C. Lai

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4407.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4407
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  1. Denicolo, Vincenzo, 1996. "Patent Races and Optimal Patent Breadth and Length," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 249-65, September.
  2. Robert E. Lucas, Jr. & Benjamin Moll, 2011. "Knowledge Growth and the Allocation of Time," NBER Working Papers 17495, National Bureau of Economic Research, Inc.
  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. Michele Boldrin & David K Levine, 2008. "Against Intellectual Monopoly," Levine's Bibliography 122247000000002371, UCLA Department of Economics.
  5. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  6. Antonio Minniti & Carmelo Parello & Paul Segerstrom, 2013. "A Schumpeterian growth model with random quality improvements," Economic Theory, Springer, vol. 52(2), pages 755-791, March.
  7. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  8. Robert M. Hunt, 2002. "Patentability, industry structure, and innovation," Working Papers 01-13, Federal Reserve Bank of Philadelphia.
  9. Costas Arkolakis, 2009. "A Unified Theory of Firm Selection and Growth," CESifo Working Paper Series 2679, CESifo Group Munich.
  10. repec:cup:cbooks:9780521879286 is not listed on IDEAS
  11. Ted O'Donoghue & Josef Zweim¸ller, 2004. "Patents in a Model of Endogenous Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 81-123, 03.
  12. 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.
  13. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
  14. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  15. 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.
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