IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v81y2015i3p803-828.html
   My bibliography  Save this article

Creative Destruction and Optimal Patent Life in a Variety‐Expanding Growth Model

Author

Listed:
  • Hwan C. Lin

Abstract

This article presents more channels through which the optimal patent life is determined in a R&D‐based endogenous growth model with an expanding variety of consumer goods. It features an endogenous hazard rate at which patented firms' monopoly profits are “creatively destructed” by arrivals of newer varieties, among other things. A patent's effective life is, therefore, endogenized and less than its legal life. This model is calibrated to a global economy with a set of baseline parameter values. The optimal patent length is computed with the algorithm of Golden Search Section, ranging from 17 to 19 years. With the creative‐destruction hazard, the world needs a longer patent term to maximize social welfare but with the prevalence of research congestion, the world needs a shorter patent term. However, if the world's aggregate welfare appreciates varieties of goods in a way strong enough, the optimal patent term can surprisingly extend beyond 1000 years!

Suggested Citation

  • Hwan C. Lin, 2015. "Creative Destruction and Optimal Patent Life in a Variety‐Expanding Growth Model," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 803-828, January.
    • Handle: RePEc:wly:soecon:v:81:y:2015:i:3:p:803-828
    DOI: 10.4284/0038-4038-2013.078
    as

    Download full text from publisher

    File URL: https://doi.org/10.4284/0038-4038-2013.078
    Download Restriction: no
    File URL: https://libkey.io/10.4284/0038-4038-2013.078?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-1164, December.
    2. Grieben, Wolf-Heimo & Sener, Fuat, 2009. "Globalization, rent protection institutions, and going alone in freeing trade," European Economic Review, Elsevier, vol. 53(8), pages 1042-1065, November.
    3. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    4. Hwan C. Lin, 2002. "Shall the Northern Optimal R&D Subsidy Rate Inversely Respond to Southern Intellectual Property Protection?," Southern Economic Journal, John Wiley & Sons, vol. 69(2), pages 381-397, October.
    5. Theo Eicher & Cecilia García-Peñalosa, 2008. "Endogenous Strength of Intellectual Property Rights," Working Papers UWEC-2007-14-P, University of Washington, Department of Economics.
    6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    7. Helpman, Elhanan, 1993. "Innovation, Imitation, and Intellectual Property Rights," Econometrica, Econometric Society, vol. 61(6), pages 1247-1280, November.
    8. Gene M. Grossman & Edwin L.-C. Lai, 2004. "International Protection of Intellectual Property," American Economic Review, American Economic Association, vol. 94(5), pages 1635-1653, December.
    9. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    10. Elias Dinopoulos & Constantinos Syropoulos, 2007. "Rent Protection as a Barrier to Innovation and Growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 309-332, August.
    11. Cozzi Guido & Spinesi Luca, 2004. "Information Transmission and the Bounds to Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-17, March.
    12. Angus Chu, 2010. "Effects of patent length on R&D: a quantitative DGE analysis," Journal of Economics, Springer, vol. 99(2), pages 117-140, March.
    13. Grinols, Earl L. & Lin, Hwan C., 1997. "Asymmetric Intellectual Property Rights Protection and North-South Welfare," MPRA Paper 19542, University Library of Munich, Germany.
    14. Tatsuro Iwaisako & Koichi Futagami, 2003. "Patent Policy in an Endogenous Growth Model," Journal of Economics, Springer, vol. 78(3), pages 239-258, March.
    15. Grinols, Earl L. & Lin, Hwan C., 2011. "Patent replacement and welfare gains," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1586-1604, September.
    16. Susanto Basu, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 719-751.
    17. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
    18. Furukawa, Yuichi, 2007. "The protection of intellectual property rights and endogenous growth: Is stronger always better?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3644-3670, November.
    19. DeBrock, Lawrence M, 1985. "Market Structure, Innovation, and Optimal Patent Life," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 223-244, April.
    20. Eicher, Theo & García-Peñalosa, Cecilia, 2008. "Endogenous strength of intellectual property rights: Implications for economic development and growth," European Economic Review, Elsevier, vol. 52(2), pages 237-258, February.
    21. Guido Cozzi, 2003. "Innovating on Innovations," Rivista di Politica Economica, SIPI Spa, vol. 93(2), pages 3-29, March-Apr.
    22. Iwaisako, Tatsuro & Tanaka, Hitoshi & Futagami, Koichi, 2011. "A welfare analysis of global patent protection in a model with endogenous innovation and foreign direct investment," European Economic Review, Elsevier, vol. 55(8), pages 1137-1151.
    23. Grinols, Earl & Lin, Hwan C., 2006. "Global patent protection: channels of north and south welfare gain," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 205-227, February.
    24. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    25. Davis, Lewis S. & Şener, Fuat, 2012. "Private patent protection in the theory of Schumpeterian growth," European Economic Review, Elsevier, vol. 56(7), pages 1446-1460.
    26. Lin, Hwan C., 2010. "Technology diffusion and global welfare effects: Imitative R&D vs. South-bound FDI," Structural Change and Economic Dynamics, Elsevier, vol. 21(4), pages 231-247, November.
    27. Futagami, Koichi & Iwaisako, Tatsuro, 2007. "Dynamic analysis of patent policy in an endogenous growth model," Journal of Economic Theory, Elsevier, vol. 132(1), pages 306-334, January.
    28. Scherer, F M, 1972. "Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation," American Economic Review, American Economic Association, vol. 62(3), pages 422-427, June.
    29. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
    30. Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
    31. Hélène Dernis & Mosahid Khan, 2004. "Triadic Patent Families Methodology," OECD Science, Technology and Industry Working Papers 2004/2, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lin, Hwan C., 2013. "Optimal Patent Life in a Variety-Expansion Growth Model," MPRA Paper 49790, University Library of Munich, Germany.
    2. Lin, Hwan C., 2016. "The switch from patents to state-dependent prizes for technological innovation," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 193-223.
    3. Angus C. Chu, 2024. "Macroeconomic effects of intellectual property rights: an updated survey," Chapters, in: Walter G. Park (ed.), Handbook of Innovation and Intellectual Property Rights, chapter 2, pages 13-26, Edward Elgar Publishing.
    4. Iwaisako, Tatsuro & Tanaka, Hitoshi & Futagami, Koichi, 2011. "A welfare analysis of global patent protection in a model with endogenous innovation and foreign direct investment," European Economic Review, Elsevier, vol. 55(8), pages 1137-1151.
    5. Hwan C. Lin & L. F. Shampine, 2018. "R&D-based Calibrated Growth Models with Finite-Length Patents: A Novel Relaxation Algorithm for Solving an Autonomous FDE System of Mixed Type," Computational Economics, Springer;Society for Computational Economics, vol. 51(1), pages 123-158, January.
    6. Angus C. Chu, 2022. "Patent policy and economic growth: A survey," Manchester School, University of Manchester, vol. 90(2), pages 237-254, March.
    7. Angus C. Chu, 2009. "Macroeconomic Effects of Intellectual Property Rights: A Survey," IEAS Working Paper : academic research 09-A007, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    8. repec:pra:mprapa:52608 is not listed on IDEAS
    9. Lin, Hwan C. & Shampine, L.F., 2014. "Finite-length Patents and Functional Differential Equations in a Non-scale R&D-based Growth Model," MPRA Paper 61603, University Library of Munich, Germany.
    10. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2012. "Does intellectual monopoly stimulate or stifle innovation?," European Economic Review, Elsevier, vol. 56(4), pages 727-746.
    11. Angus Chu, 2009. "Effects of blocking patents on R&D: a quantitative DGE analysis," Journal of Economic Growth, Springer, vol. 14(1), pages 55-78, March.
    12. Angus Chu & Guido Cozzi & Chih-Hsing Liao, 2013. "Endogenous fertility and human capital in a Schumpeterian growth model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(1), pages 181-202, January.
    13. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2012. "Does intellectual monopoly stimulate or stifle innovation?," European Economic Review, Elsevier, vol. 56(4), pages 727-746.
    14. Shiyuan Pan & Heng-fu Zou & Tailong Li, 2010. "Patent Protection, Technological Change and Wage Inequality," CEMA Working Papers 437, China Economics and Management Academy, Central University of Finance and Economics.
    15. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2014. "Stage-dependent intellectual property rights," Journal of Development Economics, Elsevier, vol. 106(C), pages 239-249.
    16. Kenichiro Ikeshita, 2018. "Campaign contributions and innovation in a fully-endogenous quality-ladder model," Asia-Pacific Journal of Regional Science, Springer, vol. 2(1), pages 139-157, April.
    17. Yuki Saito, 2018. "On the trade, growth, and welfare effects of intellectual property rights protection," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 235-254, July.
    18. Iwaisako, Tatsuro, 2023. "Optimal mix of R&D subsidy and patent protection in a heterogeneous-industry R&D-based growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    19. Ohki, Kazuyoshi, 2023. "Disruptive innovation by heterogeneous incumbents and economic growth: When do incumbents switch to new technology?," Journal of Mathematical Economics, Elsevier, vol. 107(C).
    20. Chu, Angus C. & Furukawa, Yuichi, 2011. "On the optimal mix of patent instruments," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1964-1975.
    21. Lin, Hwan C., 2012. "Switching from Patents to an Intertemporal Bounty in a Non-Scale Growth Model: Transitional Dynamics and Welfare Evaluation," MPRA Paper 49782, University Library of Munich, Germany, revised 12 Sep 2013.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:81:y:2015:i:3:p:803-828. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.