A Generalized Quality-Ladder Growth Model with Overlapping Intellectual Property Rights: Quantifying the Effects of Blocking Patents on R&D

Chu, Angus C. (2007): A Generalized Quality-Ladder Growth Model with Overlapping Intellectual Property Rights: Quantifying the Effects of Blocking Patents on R&D.

Abstract

What are the effects of blocking patents on R&D and consumption? This paper develops an R&D-driven endogenous growth model with overlapping intellectual property rights to quantify the inefficiency in the patent system. The analysis focuses on two policy variables: (a) patent breadth that determines the total profit received by a patent pool; and (b) the profit-sharing rule that determines the distribution of surplus between innovators. To quantify the inefficiency arising from blocking patents that are generated by these two policy variables, the model is calibrated to aggregate data of the US economy. Under parameter values that match key features of the US economy and show equilibrium R&D underinvestment, I find that eliminating blocking patents would lead to a conservatively estimated increase in R&D of 12% and long-run consumption of 4% per year. This paper also quantifies the transition-dynamic effects of patent policy and shows implications that are different from previous studies in important ways.

• Item Type: MPRA Paper
• Institution: University of Michigan
• Language: English
• Keywords: blocking patents; endogenous growth; patent breadth; patent pools; R&D
• 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

References

1. Acemoglu, Daron (2007) “Introduction to Modern Economic Growth” book manuscript. 2. Aghion, Phillippe; and Howitt, Peter (1992) “A Model of Growth through Creative Destruction” Econometrica vol. 60, p. 323-351. 3. Arnold, Lutz G. (2006) “The Dynamics of the Jones R&D Growth Model” Review of Economic Dynamics vol. 9, p. 143-152. 4. Barro, Robert J.; and Sala-i-Martin, Xavier (2003) “Economic Growth” The MIT Press. 5. Basu, Susanto (1996) “Procyclical Productivity: Increasing Returns or Cyclical Utilization?” Quarterly Journal of Economics vol. 111, p. 719-751. 6. Basu, Susanto; and Fernald, John G. (1997) “Returns to Scale in U.S. Production: Estimates and Implications” Journal of Political Economy vol. 105, p. 249-283. 7. Basu, Susanto; Fernald, John G.; and Kimball, Miles S. (2006) “Are Technology Improvements Contractionary?” American Economic Review vol. 96, p. 1418-1448. 8. Caballero, Ricardo J.; and Jaffe, Adam B. (2002) “How High Are the Giants’ Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth” in A. Jaffe and M. Trajtenberg, eds., Patents, Citations and Innovations: A Window on the Knowledge Economy p. 89-152. 9. Chu, Angus C. (2007) “Economic Growth and Patent Policy: Quantifying the Effects of Patent Length on R&D and Consumption” University of Michigan Working Paper. 10. Comin, Diego (2004) “R&D: A Small Contribution to Productivity Growth” Journal of Economic Growth vol. 9, p. 391-421. 11. Futagami, Koichi; and Iwaisako, Tatsuro (2007) “Dynamic Analysis of Patent Policy in an Endogenous Growth Model” Journal of Economic Theory vol. 132, p. 306-334. 12. Gallini, Nancy T. (2002) “The Economics of Patents: Lessons from Recent U.S. Patent Reform” Journal of Economic Perspectives vol. 16, p. 131-154. 13. Gilbert, Richard; and Shapiro, Carl (1990) “Optimal Patent Length and Breadth” RAND Journal of Economics vol. 21, p. 106-112. 14. Goh, Ai-Ting; and Olivier, Jacques (2002) “Optimal Patent Protection in a Two-Sector Economy” International Economic Review vol. 43, p. 1191-1214. 15. Green, Jerry R.; and Scotchmer, Suzanne (1995) “On the Division of Profit in Sequential Innovation” RAND Journal of Economics vol. 26, p. 20-33. 16. Grossman, Gene M.; and Helpman, Elhanan (1991) “Quality Ladders in the Theory of Growth” Review of Economic Studies vol. 58, p. 43-61. 17. Grossman, Gene M.; and Lai, Edwin L.-C. (2004) “International Protection of Intellectual Property” American Economic Review vol. 94, p. 1635-1653. 18. Guvenen, Fatih (2006) “Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution: A Macroeconomic Perspective” Journal of Monetary Economics vol. 53, p. 1451-1472. 19. Hall, Bronwyn H.; Jaffe, Adam B.; and Trajtenberg, Manuel (2002) “The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools” in A.B. Jaffe and M. Trajtenberg, eds., Patents, Citations and Innovations: A Window on the Knowledge Economy p. 403-459. 20. Helpman, Elhanan (1993) “Innovation, Imitation and Intellectual Property Rights” Econometrica vol. 61, p. 1247-1280. 21. Hopenhayn, Hugo; Llobet, Gerard; and Mitchell, Matthew (2006) “Rewarding Sequential Innovators: Prizes, Patents, and Buyouts” Journal of Political Economy vol. 114, p. 1041-1068. 22. Hunt, Robert M. (1999) “Nonobviousness and the Incentive to Innovate: An Economic Analysis of Intellectual Property Reform” Federal Reserve Bank of Philadelphia Working Paper 99-3. 23. Jaffe, Adam B. (2000) “The U.S. Patent System in Transition: Policy Innovation and the Innovation Process” Research Policy vol. 29, p. 531-557. 24. Jaffe, Adam B.; and Lerner, Josh (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. 25. Jones, Charles I. (1995a) “Time Series Tests of Endogenous Growth Models” Quarterly Journal of Economics vol. 110, p. 495-525. 26. Jones, Charles I. (1995b) “R&D-Based Models of Economic Growth” Journal of Political Economy vol. 103, p. 759-784. 27. Jones, Charles I. (1999) “Growth: With or Without Scale Effects” American Economic Review Papers and Proceedings vol. 89 p. 139-144. 28. Jones, Charles I.; and Williams, John C. (1998) “Measuring the Social Return to R&D” Quarterly Journal of Economics vol. 113, p. 1119-1135. 29. Jones, Charles I.; and Williams, John C. (2000) “Too Much of a Good Thing? The Economics of Investment in R&D” Journal of Economic Growth, vol. 5, p. 65-85. 30. Judd, Kenneth L. (1985) “On the Performance of Patents” Econometrica vol. 53, p.567-586. 31. Klemperer, Paul (1990) “How Broad Should the Scope of Patent Protection Be? RAND Journal of Economics vol. 21, p. 113-130. 32. Kortum, Samuel; and Lerner, Josh (1998) “Stronger Protection or Technological Revolution: What is Behind the Recent Surge in Patenting?” Carnegie-Rochester Conference Series on Public Policy vol. 48, p. 247-304. 33. Kwan, Yum K.; and Lai, Edwin L.-C. (2003) “Intellectual Property Rights Protection and Endogenous Economic Growth” Journal of Economic Dynamics and Control vol. 27, p. 853-873. 34. Laitner, John (1982) “Monopoly and Long-Run Capital Accumulation” Bell Journal of Economics vol. 13, p. 143-157. 35. Laitner, John; and Stolyarov, Dmitriy (2003) “Technological Change and the Stock Market” American Economic Review vol. 93, p. 1240-1267. 36. Laitner, John; and Stolyarov, Dmitriy (2004) “Aggregate Returns to Scale and Embodied Technical Change: Theory and Measurement Using Stock Market Data” Journal of Monetary Economics vol. 51, p. 191-233. 37. Laitner, John; and Stolyarov, Dmitriy (2005) “Owned Ideas and the Stock Market” University of Michigan Working Paper. 38. Lanjouw, Jean Olson (1998) “Patent Protection in the Shadow of Infringement: Simulation Estimations of Patent Value” Review of Economic Studies vol. 65, p. 671-710. 39. Lerner, Josh (1994) “The Importance of Patent Scope: An Empirical Analysis” RAND Journal of Economics vol. 25, p. 319-333. 40. Lerner, Josh; and Tirole, Jean (2004) “Efficient Patent Pools” American Economic Review vol. 94, p. 691-711. 41. Lerner, Josh; Tirole, Jean; and Strojwas, Marcin (2003) “Cooperative Marketing Agreements Between Competitors: Evidence from Patent Pools” NBER Working Paper Series No. 9680. 42. Li, Chol-Won (2001) “On the Policy Implications of Endogenous Technological Progress” Economic Journal vol. 111, p. 164-179. 43. Nordhaus, William (1969) “Invention, Growth, and Welfare” Cambridge, Mass.: MIT Press. 44. O’Donoghue, Ted (1998) “A Patentability Requirement for Sequential Innovation” RAND Journal of Economics vol. 29, p. 654-679. 45. O’Donoghue, Ted; Scotchmer, Suzanne; and Thisse, Jacques-Francois (1998) “Patent Breadth, Patent Life, and the Pace of Technological Progress” Journal of Economics and Management Strategy vol. 7, p. 1-32. 46. O’Donoghue, Ted; and Zweimuller, Josef (2004) “Patents in a Model of Endogenous Growth” Journal of Economic Growth vol. 9, p. 81-123. 47. Pakes, Ariel (1986) “Patents as Options: Some Estimates of the Value of Holding European Patent Stocks” Econometrica vol. 54, p. 755-784. 48. Rivera-Batiz, Luis A.; and Romer, Paul M. (1991) “Economic Integration and Endogenous Growth” Quarterly Journal of Economics vol. 106, p. 531-555. 49. Romer, Paul M. (1990) “Endogenous Technological Change” Journal of Political Economy vol. 98, S71-S102. 50. Scotchmer, Suzanne (2004) “Innovation and Incentives” Cambridge, Mass.: MIT Press. 51. Segerstrom, Paul S. (1998) “Endogenous Growth without Scale Effects” American Economic Review vol. 88, p. 1290-1310. 52. Shapiro, Carl (2001) “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting” in A. Jaffe, J. Lerner and S. Stern, eds., Innovation Policy and the Economy vol. 1, p. 119-150. 53. Steger, Thomas M. (2005) “Non-Scale Models of R&D-based Growth: The Market Solution” Topics in Macroeconomics vol. 5 (1), Article 3. 54. Stokey, Nancy L. (1995) “R&D and Economic Growth” Review of Economic Studies vol. 62, p.469-489. 55. Tandon, Pankaj (1982) “Optimal Patents with Compulsory Licensing” Journal of Political Economy vol. 90, p. 470-486. 56. Trimborn, Timo; Koch, Karl-Josef; and Steger, Thomas M. (2007) “Multi-Dimensional Transitional Dynamics: A Simple Numerical Procedure” Macroeconomic Dynamics forthcoming.