How Many Patents Does it Take to Signal Innovation Quality?

32 Pages Posted: 8 Jul 2014

See all articles by Stefano Comino

Stefano Comino

University of Trento - Department of Economics and Management

Clara Graziano

Università degli Studi di Udine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: June 12, 2014

Abstract

In this paper, we offer a novel explanation to the surge in patenting bserved during the last years. With low patentability standards at PTOs (Patent and Trademark Offices awarding so-called bad patents), not only “false innovators” have the chance of being granted patents but also, and more interestingly, “true innovators” are forced to patent more intensively trying to signal their type; however, if they are liquidity constrained, true innovators may fail to separate and this fact reduces the incentives to exert effort in R&D activities. Then, drawing on the signaling role of patents highlighted by the model, we investigate some of the proposals that have been put forward in order to mitigate the bad patents problem. We provide an intuitive condition under which a tightening of the patentability standards (“raising the bar”) reduces the distortions caused by bad patents. Moreover, we show that introducing a two-tiered patent system is unlikely to improve market outcomes.

Keywords: patenting, bad patents, R&D incentives, signaling

JEL Classification: L130, O310, O340

Suggested Citation

Comino, Stefano and Graziano, Clara, How Many Patents Does it Take to Signal Innovation Quality? (June 12, 2014). CESifo Working Paper Series No. 4840, Available at SSRN: https://ssrn.com/abstract=2463133

Stefano Comino

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy

Clara Graziano (Contact Author)

Università degli Studi di Udine - Department of Economics ( email )

Via Tomadini 30
33100 Udine
Italy
+0432+249216 (Phone)
+0432+249229 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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