Intellectual Property Rights in a Quality-Ladder Model with Persistent Leadership

Abstract:     
This article analyzes the effects of intellectual property rights in a quality-ladder model in which incumbent firms preemptively innovate in order to keep their position of leadership. Unlike in models with leapfrogging, granting non-expiring forward protection reduces the rate of innovation and imposing a non-obviousness requirement reduces R&D spending. It is shown that full protection against imitation, granted independently of the size of the lead, maximizes the average innovation rate.

Number of Pages in PDF File: 56

Keywords: Intellectual property rights, persistent leadership, cumulative innovation, preemption, forward protection, non-obviousness requirement, patent policy

JEL Classification: L40, O31, O34

working papers series