nep-ipr New Economics Papers
on Intellectual Property Rights
Issue of 2009‒12‒19
fourteen papers chosen by
Roland Kirstein
Otto von Guericke University Magdeburg

  1. Effects of Patent Length on R&D: A Quantitative DGE Analysis By Angus C. Chu
  2. Innovation-Specific Patent Protection By Angus C. Chu
  3. Macroeconomic Effects of Intellectual Property Rights: A Survey By Angus C. Chu
  4. Offshore Outsourcing, Contractual R&D and Intellectual Property in Developing Countries By Marjit, Sugata; Xu, Xinpeng; Yang, Lei
  5. Strategic Under-utilization of Patents and Entry Deterrence: The Case of Pharmaceutical Industry By Marjit, Sugata; Kabiraj, Tarun; Dutta, Arijita
  6. Compulsory Licensing - Evidence from the Trading with the Enemy Act By Petra Moser; Alessandra Voena
  7. Formal vs. informal protection instruments and the strategic use of patents in an Expected-Utility framework By Neuhaeusler, Peter
  8. International Intellectual Property Rights: Effects on Growth, Welfare and Income Inequality By Angus C. Chu; Shin-Kun Peng
  9. Building Absorptive Capacity to Organise Inbound Open Innovation in Low Tech Industries By A. SPITHOVEN; B. CLARYSSE; M. KNOCKAERT
  10. Innovation, Fast Seconds, and Patent Policy By George Norman; Lynn Pepall; Dan Richards
  11. Entrepreneurial Human Capital, Complementary Assets, and Takeover Probability By Thorsten V. Braun; Sebastian Krispin; Erik E. Lehmann
  12. When do firm-technology intermediary interactions result in cognitive capacity additionality By M. KNOCKAERT; A. SPITHOVEN
  13. The evolution of Norway’s national innovation system By Fagerberg, Jan; Mowery , David C; Verspagen, Bart
  14. Governing science as a complex adaptive system By Gaston Heimeriks

  1. By: Angus C. Chu (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: This paper develops an R&D-growth model and calibrates the model to aggregate data of the US economy to quantify a structural relation ship between patent length, R&D and consumption. Under parameter values that match the empirical flow-profit depreciation rate of patents and other key features of the US economy, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. In contrast, shortening the patent length leads to a significant reduction in R&D and consumption. Finally, this paper also analytically derives and quantifies a dynamic distortionary effect of patent length on capital investment.
    Keywords: innovation-driven growth, intellectual property rights, patent length, R&D
    JEL: O31 O34
    Date: 2009–01
  2. By: Angus C. Chu (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: This study develops an R&D-based growth model that features both vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. Speci…cally, we analyze the growth and welfare effects of patent protection in the form of profit division between sequential innovators along the quality ladder. We show that patent protection has asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Maximizing the incentives for vertical (horizontal) innovation requires a profit-division rule that assigns the entire flow profit to the entrant (incumbent) of a quality ladder. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patent protection, it is important to firstly disentangle its different effects on vertical and horizontal innovation.
    Keywords: economic growth, innovation, intellectual property rights
    JEL: O31 O34 O40
    Date: 2009–10
  3. By: Angus C. Chu (Institute of Economics, Academia Sinica, Taipei,Taiwan)
    Abstract: This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
    Keywords: economic growth, income inequality, patent policy, international coordination
    JEL: O34 O40 F13 D31
    Date: 2009–06
  4. By: Marjit, Sugata; Xu, Xinpeng; Yang, Lei
    Abstract: This paper examines the role of intellectual property in developing countries in offshore outsourcing of R&D. We find that strengthened intellectual property protection in developing countries provides incentive for firms, both multinational and local, to specialize in undertaking an R&D activity in which it has competitive advantage (the specialization effect). It also facilitates the process for local firms to switch from imitators to potential innovators (the switching effect). We demonstrate that the multinational firm's strategic behavior on IPR enforcement can be used as an effective instrument to subsidize contractual research and development in developing countries (the subsidizing effect). We further illustrate how a policy mix of IPR and FDI subsidy in developing countries affects R&D activities adding an offshore R&D subsidiary as an additional organizational form.
    Keywords: Intellectual Property Rights; Contractual R&D; R&D Chain.
    JEL: O1 L13 O34 F14
    Date: 2009–12
  5. By: Marjit, Sugata; Kabiraj, Tarun; Dutta, Arijita
    Abstract: This paper seeks to explain why some pharmaceutical companies are observed to withdraw their products before patents are expired and simultaneously introduce new patented (competing) products. Given the specific nature of drug markets, the companies in fact increase the entry cost of the potential generic drug manufacturers and thereby lessen competition for new drugs. The paper determines the optimal date of withdrawing the product and studies comparative static effects of the change of parameters underlying the model.
    Keywords: Patent protection; patent expiry; pharmaceutical industries; generic drugs; entry cost.
    JEL: O3 L1
    Date: 2009–11
  6. By: Petra Moser; Alessandra Voena
    Abstract: Compulsory licensing allows firms in developing countries to produce foreign-owned inventions without the consent of foreign patent owners. This paper uses an exogenous event of compulsory licensing after World War I under the Trading with the Enemy Act to examine the long run effects of compulsory licensing on domestic invention. Difference-in-differences analyses of nearly 200,000 chemical inventions suggest that compulsory licensing increased domestic invention by at least 20 percent.
    JEL: N32 N42 O1 O12 O2 O3 O31 O34 O38
    Date: 2009–12
  7. By: Neuhaeusler, Peter
    Abstract: The present article examines the question whether or not different types of firms tend to protect their innovations with varying mechanisms. Against the background of the Expected-Utility Theory (EU-Theory), firms are differentiated by their size, technological field and their degree of internationalization. According to the EU-Theory modelling, it is hypothesized that large, high-tech and strongly internationalized firms show a stronger tendency to use formal instruments, e.g. patents, to protect their innovations, whereas small and medium-sized (SME), low-tech and weakly internationalized companies fol-low the strategy of protecting their innovations with informal instruments, e.g. secrecy, to maximize their expected utility. A twofold approach is followed to analyze the theoretical model. For the empirical testing a large-scale survey about 540 records of patenting companies in Germany is used. Differences in attitudes towards protection mechanisms and differences in the actual IPR-management behavior between firms are analyzed. The results show that the attitudes towards protecting innovative achievements only differ slightly by firm type. Large differences can be revealed on the behavioral level which, together with other findings, leads to the conclusion that mostly SMEs are forced to use certain protection mechanisms to keep pace with large companies and technological precursors in fast growing markets. --
    Keywords: Intellectual property,rational choice,patents,secrecy,expected utility
    Date: 2009
  8. By: Angus C. Chu; Shin-Kun Peng (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: What are the effects of increasing developing countries’ intellectual property rights protection on growth, welfare and income inequality in the global economy? To analyze this question, we develop a two-country R&D-growth model with wealth heterogeneity. We find that the North experiences higher growth and welfare at the expense of higher income inequality while the South experiences higher growth at the expense of lower welfare and higher income inequality. As for global welfare, there exists a critical degree for the domestic importance of foreign goods below (above) which global welfare decreases (increases). In light of these findings, we discuss policy implications on China’s accession to the WTO in 2001. Furthermore, we analyze the effects of China’s rising innovative capability on domestic and foreign income inequality.
    Keywords: endogenous growth, heterogeneity, income inequality, patent policy, TRIPS
    JEL: O34 O41 D31 F13
    Date: 2009–06
    Abstract: The discussion on open innovation suggests that the ability to absorb external knowledge has become a major driver for competition. In the case of inbound open innovation, companies screen their environment to search for the appropriate technology and knowledge and do not exclusively rely on in-house R&D. A key precondition is that firms dispose of “absorptive capacity” to internalise external knowledge. For R&D intensive large firms, the concept of absorptive capacity is well understood. In contrast, for small firms and firms operating in traditional sectors, implementing the concept of absorptive capacity is less documented. These firms will have to look for assistance to build their absorptive capacity or even to ‘outsource’ a significant part of this function. This paper, therefore, focuses on the role of collective research centres in Belgium in building absorptive capacity at the intraorganisational dyad level. This type of technology intermediaries are created to help firms operating in traditional sectors to take advantage of the latest technological developments. The aim of the paper is to demonstrate that the trend towards openness of the innovation process forces firms lacking absortive capacity to search for alternative ways to engage in inbound open innovation. The paper highlights the multiple activities of which absorptive capacity is made up; it defines the concept of absorptive capacity as a precondition to open innovation; and it demonstrates how firms lacking absorptive capacity collectively cope with the distributedness of knowledge and innovation.
    Keywords: open innovation; absorptive capacity; technology intermediation
    Date: 2009–08
  10. By: George Norman; Lynn Pepall; Dan Richards
    Abstract: We develop a model of innovation in which entrepreneurs develop a new (differentiated) product market that is subsequently exploited by a well-established firm that "stretches" its brand to enter a new market as "fast second". In this setting, there is a positive externality to the pioneering efforts of the intitial entrants that may well increase with the number of such entrants. We develop a model that exhibits this externality and use it to evaluate the design of patent policy--specifically patent breadth--with a view to encouraging the optimal amount of initial entry.
    Keywords: fast second, product differentiation, contestability
    JEL: L5 O25
    Date: 2009
  11. By: Thorsten V. Braun (University of Augsburg, Department of Economics); Sebastian Krispin (University of Augsburg, Department of Economics); Erik E. Lehmann (University of Augsburg, Department of Economics)
    Abstract: Gaining access to technologies, competencies, and knowledge is observed as one of the major motives for corporate mergers and acquisitions. In this paper we show that a knowledge-based firm’s probability of being a takeover target is influenced by whether relevant specific human capital aimed for in acquisitions is directly accumulated within a specific firm or is bound to its founder or manager owner. We analyze the incentive effects of different arrangements of ownership in a firm’s assets in the spirit of the Grossman-Hart-Moore incomplete contracts theory of the firm. This approach highlights the organizational significance of ownership of complementary assets. In a small theoretical model we assume that the entrepreneur’s specific human capital, as measured by the patents they own, and the physical assets of their firm are productive only when used together. Our results show that it is not worthwhile for an acquirer to purchase the alienable assets of this firm due to weakened incentives for the initial owner. Regression analysis using a hand collected dataset of all German IPOs in the period from 1997 to 2006 subsequently provides empirical support for this prediction. This paper adds to previous research in that it puts empirical evidence to the Grossman-Hart-Moore framework of incomplete contracts or property rights respectively. Secondly, we show that relevant specific human capital that is accumulated by a firm’s founder or manager owner significantly decreases that firm’s probability of being a takeover target.
    Keywords: ownership structure, property rights, mergers & acquisitions
    JEL: G32 D23 G34
    Date: 2009–12
    Abstract: Governments have increasingly become involved in stimulating cooperation for innovation and R&D and have less focused on direct R&D subsidies. One set of initiatives is targeted at providing financial support for technology intermediaries. In this paper, we shed light on when technology intermediaries contribute to learning or networking outcomes generated by the firms that call upon them. We hereby focus on network and competence additionality as measures for cognitive capacity additionality and study the impact of collective research centres on their member firms. The results indicate that absorptive capacity of the collective research centre does not affect cognitive capacity additionality generated by the member firms for R&D activities, but higher levels of absorptive capacity tend to negatively affect cognitive capacity additionality generated by member firms engaging in R&D related activities. The absorptive capacity of the member firms does not directly affect cognitive capacity additionality generated by the member firms, but the results on mediation analysis show that member firms with higher levels of absorptive capacity use the services of the collective research centre more intensively, and generate higher levels of cognitive capacity additionality.
    Date: 2009–09
  13. By: Fagerberg, Jan; Mowery , David C; Verspagen, Bart
    Abstract: This paper analyses the co-evolution of science, technology and innovation policy and industrial structure in a small, open, resource-based economy (Norway). The contributions of the paper are threefold. First, it develops an evolutionary and historically oriented approach to the study of the development of these policies that may have wide applicability. Second, it focuses on a particular type of innovation, innovation in resource-based activities, that differs in many respects from the more commonly studied case of innovation in ‘high-tech’ industries. Third, the paper advances our understanding of the roles played by institutions and politics in innovation. Previous work on national systems of innovation has devoted little attention to these matters, possibly because much of this work examines ‘snapshots’ of various innovation systems at a specific point in time and lacks historical depth.
    Keywords: innovation; national innovation system; Norway; evolution
    JEL: O1 N10 F50
    Date: 2009–07
  14. By: Gaston Heimeriks
    Abstract: Research policy is a complex matter. Copying best practices in research policy, as identified by benchmarking studies, is popular amongst policy makers but fails because of ‘knowledge asymmetries’. Research fields exhibit distinct knowledge dynamics that respond differently to governance interventions. Extending the idea of search regimes, this paper aims at providing a policy model for different knowledge dynamics by elaborating the notion of knowledge production as a complex adaptive system. Complex regimes emerge from three interacting sources of variance. In our conceptualisation, researchers are the nodes that carry the science system. Research can be considered as geographically situated practices with site specific skills, equipments and tools. The emergent science level refers to the formal communication activities of the knowledge published in journals and books, and announced in conferences. The contextual dynamics refer to the ways in which knowledge production provides resources for social and economic development. This conceptualization allows us to disaggregate knowledge dynamics both in horizontal (field related) and vertical (level related) dimensions by articulating the three different dynamics and their path dependencies (in research, science and society) in co-evolution with each other to produce distinct search regimes in each field. The implication for research governance is that generic measures can sometimes be helpful but there is clear need for disaggregated measures targeting field specific search regimes. Governing knowledge production through disaggregated measures means targeting in a distinct way not only different fields, but also, and more importantly, the interactions between local research practices, emergent scientific landscapes, and the field’s relationship to its societal context. If all three “levels” are aligned, there is a stable regime.
    Keywords: search regime, research and innovation governance, complex adaptive system
    Date: 2009–11

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