Cumulative Innovation, Growth and Welfare-Improving Patent Policy

43 Pages Posted: 2 Oct 2013

See all articles by Davin Chor

Davin Chor

Dartmouth College - Tuck School of Business; National University of Singapore (NUS) - Department of Economics

Edwin L.-C. Lai

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: September 30, 2013

Abstract

We construct a tractable general equilibrium model of cumulative innovation and growth, in which new ideas strictly improve upon frontier technologies, and productivity improvements are drawn in a stochastic manner. The presence of positive knowledge spillovers implies that the decentralized equilibrium features an allocation of labor to R&D activity that is strictly lower than the social planner’s benchmark, which suggests a role for patent policy. We focus on a “non-infringing inventive step” requirement, which stipulates the minimum improvement to the best patented technology that a new idea needs to make for it to be patentable and non-infringing. We establish that there exists a finite required inventive step that maximizes the rate of innovation, as well as a separate optimal required inventive step that maximizes welfare, with the former being strictly greater than the latter. These conclusions are robust to allowing for the availability of an additional instrument in the form of patent length policy.

Keywords: innovation, growth, patent policy

JEL Classification: O310, O340, O400

Suggested Citation

Chor, Davin and Lai, Edwin L.-C., Cumulative Innovation, Growth and Welfare-Improving Patent Policy (September 30, 2013). CESifo Working Paper Series No. 4407. Available at SSRN: https://ssrn.com/abstract=2334680

Davin Chor

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Edwin L.-C. Lai (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

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