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When do more patents reduce R&D?

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  • Robert M. Hunt

Abstract

This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm?s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm?s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms? patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms? technologies so that each firm?s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.

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  • Robert M. Hunt, 2006. "When do more patents reduce R&D?," Working Papers 06-6, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:06-6
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    References listed on IDEAS

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    1. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
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    Patents; Research and development;

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