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Innovation-Specific Patent Protection

Angus Chu (), Guido Cozzi () and Silvia Galli ()

No 09-A010, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: This study develops an R&D-based growth model that features both vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. Specifically, we analyze the growth and welfare effects of patent protection in the form of profit division between sequential innovators along the quality ladder. We show that patent protection has asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Maximizing the incentives for vertical (horizontal) innovation requires a profit-division rule that assigns the entire flow profit to the entrant (incumbent) of a quality ladder. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patent protection, it is important to firstly disentangle its different effects on vertical and horizontal innovation.

Keywords: economic growth; innovation; intellectual property rights (search for similar items in EconPapers)
JEL-codes: O31 O41 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino, nep-ipr, nep-pr~ and nep-mic
Date: 2009-10, Revised 2010-03-16
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Related works:
Working Paper: Does intellectual monopoly stimulate or stifle innovation? (2010) Downloads
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