Patent Policy and the Direction of Technological Change

RAND JOURNAL OF ECONOMICS, Vol. 27, No. 4

Posted: 2 Oct 1996

See all articles by Mukesh Eswaran

Mukesh Eswaran

University of British Columbia (UBC) - Department of Economics

Nancy Gallini

University of Toronto - Department of Economics

Abstract

In this article we examine the interaction between firms' product and process innovation decisions and the role patent policy can play in directing technological change toward a socially efficient mix of innovations. Product innovation is a variant on a pioneer's new product; process innovation improves upon the cost efficiency of production. In a model with heterogeneous consumers, we show that an entrant relaxes competition by trading off too much process innovation in favor of product innovation, relative to what the social planner would desire. This bias toward product innovation can be corrected through appropriate choice of patent breadths on product and process innovations.

JEL Classification: L1, O3

Suggested Citation

Eswaran, Mukesh and Gallini, Nancy, Patent Policy and the Direction of Technological Change. RAND JOURNAL OF ECONOMICS, Vol. 27, No. 4. Available at SSRN: https://ssrn.com/abstract=4279

Mukesh Eswaran

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2876 (Phone)

Nancy Gallini (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-8635 (Phone)
416-978-6713 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
794
PlumX Metrics