Does intellectual monopoly stimulate or stifle innovation?

Chu, Angus C. and Cozzi, Guido and Galli, Silvia (2010): Does intellectual monopoly stimulate or stifle innovation?

Abstract

This study develops an R&D-based growth model with vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. We analyze the effects of patent protection in the form of blocking patents. We show that patent protection changes the direction of innovation by having asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Calibrating the model and simulating the transition dynamics, we find that strengthening the effect of blocking patents stifles vertical innovation and decreases economic growth but increases social welfare due to an increase in horizontal innovation. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patents, it is important to consider their often neglected compositional effects on vertical and horizontal innovation.

• 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., 2009. A note on diversity and technological progress. manuscript.

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

Acs, Z., and Sanders, M., 2009. Intellectual property rights and the knowledge spillover theory of entrepreneurship. Jena Economic Research Papers No. 2008-069.

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

Aghion, P., and Howitt, P., 1996. Research and development in the growth process. Journal of Economic Growth 1, 49-73.

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.

Boldrin, M., Levine, D., and Nuvolari, A., 2008. Do patents encourage or hinder innovation? The case of the steam engine. The Freeman: Ideas on Liberty, Volume 58, Issue 10.

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

Chu, A., and Pan, S., 2010. The escape-infringement effect of blocking patents on innovation and economic growth. MPRA Working Papers No. 27233.

Cozzi, G., 2001. Inventing or spying? Implications for growth. Journal of Economic Growth 6, 55-77.

Cozzi, G., 2005. Animal spirits and the composition of innovation. European Economic Review 49, 627-637.

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

Cozzi, G., and Galli, S., 2009. Upstream innovation protection: Common law evolution and the dynamics of wage inequality. University of Glasgow Working Papers No. 2009-20.

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.

Cozzi, G., and Spinesi, L., 2006. Intellectual appropriability, product differentiation, and growth. Macroeconomic Dynamics 10, 39-55.

Dinopoulos, E., and Thompson, P., 1999a. Schumpeterian growth without scale effects. Journal of Economic Growth 3, 313-335.

Dinopoulos, E., and Thompson, P., 1999b. Scale effects in Schumpeterian models of economic growth. Journal of Evolutionary Economics 9, 157-185.

Etro, F., 2004. Innovation by leaders. Economic Journal 114, 281-303.

Etro, F., 2008. Stackelberg competition with endogenous entry. Economic Journal 118, 1670-1697.

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.

Futagami, K., and Iwaisako, T., 2003. Patent policy in an endogenous growth model. Journal of Economics 78, 239-258.

Futagami, K., and Iwaisako, T., 2007. Dynamic analysis of patent policy in an endogenous growth model. Journal of Economic Theory 132, 306-334.

Gallini, N., 2002. The economics of patents: Lessons from recent U.S. patent reform. Journal of Economic Perspectives 16, 131-154.

Gallini, N., and Scotchmer, S., 2002. Intellectual property: When is it the best incentive system? In A. Jaffe, J. Lerner and S. Stern (eds), Innovation Policy and the Economy, vol. 2, pp. 51-78. The MIT Press.

Gersbach, H., Sorger, G., and Amon, C., 2009. Hierarchical growth: Basic and applied research. CER-ETH Economics Working Paper No. 09/118.

Ginarte, J., and Park, W., 1997. Determinants of patent rights: A cross-national study. Research Policy 26, 283-301.

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.

Grossman, G., and Lai, E., 2004. International protection of intellectual property. American Economic Review 94, 1635-1653.

Hall, B., Jaffe, A., and Trajtenberg, M., 2001. The NBER patent citations data file: Lessons, insights and methodological issues. NBER Working Papers No. 8498.

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.

Howitt, P., 1999. Steady endogenous growth with population and R&D inputs growing. Journal of Political Economy 107, 715-730.

Jaffe, A., 2000. The U.S. patent system in transition: Policy innovation and the innovation process. Research Policy 29, 531-557.

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, NJ: Princeton University Press.

Jones, C., 1999. Growth: With or without scale effects. American Economic Review 89, 139-144.

Jones, C., and Williams, J., 2000. Too much of a good thing? The economics of investment in R&D. Journal of Economic Growth 5, 65-85.

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

Koleda, G., 2004. Patents' novelty requirement and endogenous growth. Revue d'economie politique 114, 201-221.

Kortum, S., 1992. Inventions, R&D and industry growth. Ph.D. Dissertation, Yale University.

Li, C.-W., 2000. Endogenous vs. semi-endogenous growth in a two-R&D-sector model. Economic Journal 110, C109-C122.

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

Moser, P., 2005. How do patent laws influence innovation? Evidence from nineteenth-century World's Fairs. American Economic Review 95, 1214-1236.

Nordhaus, W., 1969. Invention, growth, and welfare. Cambridge, Mass.: The MIT Press.

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

Park, W., 2008. International patent protection: 1960-2005. Research Policy 37, 761-766.

Peretto, P., 1998. Technological change and population growth. Journal of Economic Growth 3, 283-311.

Peretto, P., 1999. Cost reduction, entry, and the interdependence of market structure and economic growth. Journal of Monetary Economics 43, 173-195.

Peretto, P., and Smulders, S., 2002. Technological distance, growth and scale effects. Economic Journal 112, 603-624.

Scotchmer, S., 2004. Innovation and incentives. Cambridge, Mass.: The MIT Press.

Segal, I., and Whinston, M., 2007. Antitrust in innovative industries. American Economic Review 97, 1703-1730.

Segerstrom, P., 2000. The long-run growth effects of R&D subsidies. Journal of Economic Growth 5, 277-305.

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

Shapiro, C., 2001. Navigating the patent thicket: Cross licenses, patent pools, and standard setting. In A. Jaffe, J. Lerner, S. Stern (eds), Innovation Policy and the Economy, vol. 1, pp. 119-150. The MIT Press.

Young, A., 1998. Growth without scale effects. Journal of Political Economy 106, 41-63.