Patent Protection and Strategic Delays in Technology Development: Implications for Economic Growth

University of Colorado Working Paper No. 04-09

36 Pages Posted: 11 Sep 2004

See all articles by Maggie Xiaoyang Chen

Maggie Xiaoyang Chen

George Washington University

Murat Iyigun

University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); IZA Institute of Labor Economics

Date Written: September 2006

Abstract

We present an endogenous growth model in which both the investment to develop a new technology-that upgrades the quality of machines-and entry of imitators are determined endogenously. According to the model, how soon the new-technology machine is launched after the patent is granted is influenced by two factors: returns to scale in technology development and "strategic delays." Strategic delays in technology development are most likely to occur when earlier dates of success enable imitators to enter an industry, i.e., when imitation is swift and relatively cheap and/or patent protection is relatively lengthy. We then explore the link between the optimal patent length and economic growth, and find that the equilibrium investment in technology development and thus the expected rate of technological progress exhibit an inverted U-shape relationship with respect to the legal patent length. Our results further suggest that, in order to minimize the strategic delays in technology development and spur technological progress, legal patent lengths should be shorter in industries where barriers to entry are relatively low.

Keywords: technological change, intellectual property, economic growth

JEL Classification: O11, O31, O40

Suggested Citation

Chen, Maggie Xiaoyang and Iyigun, Murat F., Patent Protection and Strategic Delays in Technology Development: Implications for Economic Growth (September 2006). University of Colorado Working Paper No. 04-09, Available at SSRN: https://ssrn.com/abstract=585361 or http://dx.doi.org/10.2139/ssrn.585361

Maggie Xiaoyang Chen

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

Murat F. Iyigun (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)

Harvard University - Center for International Development (CID) ( email )

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Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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