The Escape-Infringement Effect of Blocking Patents on Innovation and Economic Growth

Chu, Angus C. and Pan, Shiyuan (2010): The Escape-Infringement Effect of Blocking Patents on Innovation and Economic Growth.

Abstract

This study develops a Schumpeterian growth model to analyze the effects of different patent instruments on innovation. We first analyze patent breadth that captures the traditional positive effect of patent rights on innovation. Then, we consider a profit-division rule between entrants and incumbents. Given the division of profit, increasing the share of profit assigned to incumbents reduces entrants' incentives for innovation. This aspect of blocking patents captures the recently proposed negative effect of patent rights on innovation. Finally, blocking patents generate a non-monotonic effect on innovation when the step size of innovation is endogenous due to a novel escape-infringement effect. Calibrating the model to aggregate data, we find that a marginal increase in the blocking effect of patent protection is likely to raise economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; innovation; intellectual property rights
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Acemoglu, D., and Akcigit, U., 2009. State dependent intellectual property rights policy. manuscript.

Aghion, P., and Howitt, P., 1992. A model of growth through creative destruction. Econometrica 60, 323-351.

Akiyama, T., and Furukawa, T., 2009. Intellectual property rights and appropriability of innovation. Economics Letters 103, 138-141.

Bessen, J., and Meurer, M., 2008. Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk. Princeton University Press.

Boldrin, M., and Levine, D., 2008. Against Intellectual Monopoly. Cambridge University Press.

Chen, M., and Iyigun, M., 2010. Patent protection and strategic delays in technology development: Implications for economic growth. Southern Economic Journal, forthcoming.

Chu, A., 2009. Effects of blocking patents on R&D: A quantitative DGE analysis. Journal of Economic Growth 14, 55-78.

Cozzi, G., 2007. The Arrow effect under competitive R&D. The B.E. Journal of Macroeconomics 7, Issue 1 (Contributions), Article 2.

Cozzi, G., Giordani, P., and Zamparelli, L., 2007. The refoundation of the symmetric equilibrium in Schumpeterian growth models. Journal of Economic Theory 136, 788-797.

Furukawa, Y., 2007. The protection of intellectual property rights and endogenous growth: Is stronger always better? Journal of Economic Dynamics and Control 31, 3644-3670.

Furukawa, Y., 2010. Intellectual property protection and innovation: An inverted-U relationship. Economics Letters 109, 99-101.

Goh, A.-T., and Olivier, J., 2002. Optimal patent protection in a two-sector economy. International Economic Review 43, 1191-1214.

Green, J., and Scotchmer, S., 1995. On the division of profit in sequential innovations. RAND Journal of Economics 26, 20-33.

Grossman, G., and Helpman, E., 1991. Quality ladders in the theory of growth. Review of Economic Studies 58, 43-61.

Horii, R., and Iwaisako, T., 2007. Economic growth with imperfect protection of intellectual property rights. Journal of Economics 90, 45-85.

Horowitz, A., and Lai, E., 1996. Patent length and the rate of innovation. International Economic Review 37, 785-801.

Jaffe, A., and Lerner, J., 2004. Innovation and Its Discontents: How Our Broken System Is Endangering Innovation and Progress, and What to Do About It. Princeton University Press.

Judd, K., 1985. On the performance of patents. Econometrica 53, 567-586.

Lerner, J., 2009. The empirical impact of intellectual property rights on innovation: Puzzles and clues. American Economic Review 99, 343--348.

Li, C.-W., 2001. On the policy implications of endogenous technological progress. Economic Journal 111, C164-C179.

Nordhaus, W., 1969. Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change. The MIT Press.

O'Donoghue, T., and Zweimuller, J., 2004. Patents in a model of endogenous growth. Journal of Economic Growth 9, 81-123.

Qian, Y., 2007. Do national patent laws stimulate domestic innovation in a global patenting environment? A cross-country analysis of pharmaceutical patent protection, 1978--2002. Review of Economics and Statistics 89, 436--453.

Scotchmer, S., 2004. Innovation and Incentives. The MIT Press.

Segerstrom, P., Anant, T., and Dinopoulos, E., 1990. A Schumpeterian model of the product life cycle. American Economic Review 80, 1077-1092.