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Innovations, Patent Races and Endogenous Growth

  • Zeira, Joseph

This Paper presents a model of innovations and economic growth, in which patent rates emerge endogenously, as a result of two assumptions: first, R&D is innovation-specific, second, marginal cost of innovation is increasing. The Paper then examines the effects of patent races on growth, welfare, and the market structure of R&D, and derives three main results. The first is that patent races reduce significantly the effect of scale on growth. The second result is that R&D is Pareto-inefficient, as too many researchers look for the easy innovations, while too few search for the difficult ones. The third result is that risk aversion leads to concentration of R&D in few firms, to reduce risk of patent race. Interestingly this does not contribute to growth but rather to more duplication.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3974.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3974
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