Optimal Patent Protection in a Two-Sector Economy

Ai Ting Goh and Jacques Olivier
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Jacques Olivier: Department of Mathematics, University College, London

International Economic Review, 2002, vol. 43, issue 4, 1191-1214

Abstract: This article addresses the issue of optimal patent protection in an economy with a downstream and an upstream sector. The key insight is that higher patent protection in the downstream sector raises the incentives of agents to do R&D in that sector but discourages innovation in the upstream sector because of a market size effect. Hence, higher patent protection in the upstream sector accelerates growth whereas higher patent protection in the downstream sector slows it down. If some innovation is socially desirable, optimal patent protection is necessarily higher in the upstream than in the downstream sector. Copyright 2002 by the Economics Department of the University of Pennsylvania and Osaka University Institute of Social and Economic Research Association

Date: 2002
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