Optimal Patent Protection in a Two-Sector Economy

24 Pages Posted: 5 Jan 2003

See all articles by Ai-Ting Goh

Ai-Ting Goh

HEC Paris - Economics & Decision Sciences

Jacques Olivier

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR)

Abstract

This article addresses the issue of optimal patent protection in an economy with a downstream and an upstream sector. The key insight is that higher patent protection in the downstream sector raises the incentives of agents to do R&D in that sector but discourages innovation in the upstream sector because of a market size effect. Hence, higher patent protection in the upstream sector accelerates growth whereas higher patent protection in the downstream sector slows it down. If some innovation is socially desirable, optimal patent protection is necessarily higher in the upstream than in the downstream sector.

Suggested Citation

Goh, Ai-Ting and Olivier, Jacques, Optimal Patent Protection in a Two-Sector Economy. International Economic Review, Vol. 43, pp. 1191-1214, 2002. Available at SSRN: https://ssrn.com/abstract=342752

Ai-Ting Goh

HEC Paris - Economics & Decision Sciences ( email )

Paris
France
(33 1) 39 67 72 06 (Phone)
(33 1) 39 67 70 85 (Fax)

Jacques Olivier (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7297 (Phone)
+33 1 3967 7085 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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