Patents versus R&D subsidies in a Schumpeterian growth model with endogenous market structure

Chu, Angus C. and Furukawa, Yuichi (2012): Patents versus R&D subsidies in a Schumpeterian growth model with endogenous market structure.

Abstract

In this note, we explore the different implications of patent breadth and R&D subsidies on economic growth and endogenous market structure in a Schumpeterian growth model. We find that these two policy instruments have the same positive effect on economic growth when the model exhibits counterfactual scale effects under an exogenous number of firms. However, when the model becomes scale-invariant under an endogenous number of firms, R&D subsidies increase economic growth but decrease the number of firms, whereas patent breadth expands the number of firms but reduces economic growth. Therefore, R&D subsidy is perhaps a more suitable policy instrument than patent breadth for the purpose of stimulating economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; endogenous market structure; patents; R&D subsidies
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

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

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

Boldrin, M., and Levine, D., 2008. Against Intellectual Monopoly. New York, NY: Cambridge University Press.

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

Chu, A., 2011. The welfare cost of one-size-fits-all patent protection. Journal of Economic Dynamics and Control, 35, 876-890.

Chu, A., Cozzi, G., and Galli, S., 2012. Does intellectual monopoly stimulate or stifle innovation? European Economic Review, 56, 727-746.

Chu, A., and Furukawa, Y., 2011. On the optimal mix of patent instruments. Journal of Economic Dynamics and Control, 35, 1964-1975.

Chu, A., and Pan, S., 2013. The escape-infringement effect of blocking patents on innovation and economic growth. Macroeconomic Dynamics, 17, 955-969.

Etro, F., 2009. Endogenous Market Structures and the Macroeconomy. New York and Berlin: Springer.

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.

Gilbert, R., and Shapiro, C., 1990. Optimal patent length and breadth. RAND Journal of Economics, 21, 106-112.

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

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

Hall, B., and Van Reenen, J., 2000. How effective are fiscal incentives for R&D? A review of the evidence. Research Policy, 29, 449-469.

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

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

Iwaisako, T., and Futagami, K., 2013. Patent protection, capital accumulation, and economic growth. Economic Theory, 52, 631-668.

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.

Laincz, C., and Peretto, P., 2006. Scale effects in endogenous growth theory: An error of aggregation not specification. Journal of Economic Growth, 11, 263-288.

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

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

Peretto, P., 1996. Sunk costs, market structure, and growth. International Economic Review, 37, 895-923.

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 Connolly, M., 2007. The Manhattan metaphor. Journal of Economic Growth, 12, 329-350.

Romer, P., 1990. Endogenous technological progress. Journal of Political Economy, 98, S71--S102.

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

Segerstrom, P., Anant, T.C.A. and Dinopoulos, E., 1990. A Schumpeterian model of the product life cycle. American Economic Review, 80, 1077-91.

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