Document Type
Working Paper
Publication Date
Fall 10-11-2013
College/Unit
Chambers College of Business and Economics
Document Number
13-13
Department/Program/Center
Economics
Abstract
I introduce patents into a general equilibrium model of innovation, where innovators choose between creating a new product market and competing in an existing market. Patent holders demand royalties from sequential innovators, but are constrained by the ability of innovators to work around patents. I show patent protection acts as a net tax on sequential innovators, reducing both competition and productivity growth. Calibrated to match moments from U.S. data, the model predicts that eliminating patent protection in the U.S. would generate a 23% increase in steady-state productivity growth as well as an increase in welfare equivalent to that from a 16% increase in annual consumption. I test several implications of the model using both U.S. and cross-country data. Consistent with the model, the data suggests an increase in the strength of patent protection reduces both productivity growth and the average quality of innovations.
Digital Commons Citation
Bento, Pedro, "Patent Protection as a Tax on Competition and Innovation" (2013). Economics Faculty Working Papers Series. 93.
https://researchrepository.wvu.edu/econ_working-papers/93