PATENTS AND GROWTH IN OLG ECONOMY WITH PHYSICAL CAPITAL
Bharat Diwakar,
Gilad Sorek and
Michael Stern
Macroeconomic Dynamics, 2021, vol. 25, issue 2, 489-508
Abstract:
We study the implications of patents in an overlapping generations model with horizontal innovation of differentiated physical capital. We show that within this demographic structure of finitely lived agents, weakening patent protection generates two contradicting effects on innovation and growth. Weakening patent protection lowers the (average) price of patented machines, thereby increasing machine utilization, output, aggregate saving, and investment. However, a higher demand for machines shifts investment away from the R&D activity aimed at inventing new machine varieties toward the formation of physical capital. The growth-maximizing level of patent protection is incomplete. Shortening patent length is more effective than loosening patent breadth in spurring growth, due to an additional positive effect on growth, that is decreasing investment in old patents. Welfare can be improved by weakening patent protection beyond the growth-maximizing level.
Date: 2021
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Working Paper: Patents and Growth in OLG Economy with Physical Capital (2017) 
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:25:y:2021:i:2:p:489-508_7
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