Patents and Growth in OLG Economy with Physical Capital

Bharat Diwakar, Gilad Sorek and Michael Stern

No auwp2017-06, Auburn Economics Working Paper Series from Department of Economics, Auburn University

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 and we show that shortening patent length is more effective than loosening patent breadth in spurring growth. Shorter patent length has an additional positive effect on growth by decreasing investment in old patents. Finally, we show that the welfare implications of shortening patent breadth depend on consumer time preference and the degree of machine specialization.

Keywords: IPR; Patents; Physical Capital; Growth; OLG (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-dge, nep-gro, nep-ino and nep-ipr
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: PATENTS AND GROWTH IN OLG ECONOMY WITH PHYSICAL CAPITAL (2021)
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