Symbiotic Competition and Intellectual Property
47 Pages Posted: 10 Jan 2023 Last revised: 23 Sep 2023
Date Written: September 15, 2023
According to Nordhaus, the optimal life of a patent T* trades off the “embarrassment” of monopoly with motivating innovation, given that imitators would otherwise copy inventions and, in competing with innovators, reduce their profit, hence their incentive to innovate. In this paper, we extend this argument through a semi-endogenous growth model with follow-on innovations, knowledge spillovers and imperfectly elastic labor supply. We calibrate this model to the US economy and find T* between 8 and 14 years, in contrast with the current global standard of 20. A decomposition of T* suggests that knowledge spillovers are quantitatively just as important as market power. We also find that optimal patent policy depends crucially on the distribution of spillovers across industries. As such, we argue for a macroeconomic approach to patent policy.
Keywords: Optimal life of a patent, knowledge spillovers, semi-endogenous growth.
JEL Classification: D43, O11, O33, O34
Suggested Citation: Suggested Citation