| By: |
Pedro Bento (West Virginia University, College of Business and Economics) |
| Abstract: |
I introduce patents into a general equilibrium model of innovation, where
innovators choose between creating a new product market and competing in an
existing market. Patent holders demand royalties from sequential innovators,
but are constrained by the ability of innovators to work around patents. I
show patent protection acts as a net tax on sequential innovators, reducing
both competition and productivity growth. Calibrated to match moments from
U.S. data, the model predicts that eliminating patent protection in the U.S.
would generate a 23% increase in steady-state productivity growth as well as
an increase in welfare equivalent to that from a 16% increase in annual
consumption. I test several implications of the model using both U.S. and
cross-country data. Consistent with the model, the data suggests an increase
in the strength of patent protection reduces both productivity growth and the
average quality of innovations. |
| Keywords: |
patent protection, competition, innovation, productivity, regulation, growth |
| JEL: |
O1 O4 |
| Date: |
2013–10 |
| URL: |
https://d.repec.org/n?u=RePEc:wvu:wpaper:13-13 |