Patents, knowledge spillovers, and entrepreneurship
Zoltan J. Acs
0
1
2
Mark Sanders
0
1
2
JEL Classifications
0
1
2
0
M. Sanders (&) Utrecht School of Economics
,
Utrecht, The Netherlands
1
Z. J. Acs M. Sanders Max Planck Institute of Economics
,
Jena, Germany
2
Z. J. Acs George Mason University
, Fairfax,
VA, USA
We develop an endogenous-growth model in which we distinguish between inventors and innovators. This distinction implies that stronger protection of intellectual property rights has an inverted U-shaped effect on economic growth. Intellectual property rights protection attributes part of the rents of commercial exploitation to the inventor that would otherwise accrue to the entrepreneur. Stronger patent protection will therefore increase the incentive to do research and development (R&D) and generate new knowledge. This new knowledge has a positive effect on entrepreneurship, innovation, and growth. However, after some point, further strengthening of patent protection will reduce the returns to entrepreneurship sufficiently to reduce the overall growth rate.
1 Introduction
Reforms in the US patent system over the past few
decades have caused an explosion in patent applications
and grants (Gallini 2002; Jaffe and Lerner 2004). These
reforms were aimed at strengthening the position of
patent holders, and they were successful in increasing
the productivity of research measured in patents.
However, it has also been argued that the quality and
importance of these patents have decreased and that the
patent boom has not generated the economic growth
that might have been expected (Jaffe and Lerner 2004).
This has provoked a debate on the theoretical and
empirical justifications for strengthening patent
protection among policy-makers and academics.
The debate on patents is not new. In fact, for as
long as patents have existed, scholars have debated
the optimal length, strength, and breadth of
protection. A strong rationale for more protection has been
formalized in endogenous, innovation-driven growth
models such as those put forth by Romer (1990),
Aghion and Howitt (1992), Segerstrom et al. (1990),
Grossman and Helpman (1991), Stokey (1995), and
Young (1993). In these models knowledge creation
drives economic growth in the long run.
Consequently, intellectual property rights (IPR) protection
is considered a key institution that allows inventors to
market their inventions and thereby recover their
costs. The logic in these models implies that stronger
IPR protection stimulates investment in knowledge
creation and consequently causes higher growth.
The empirical growth literature indeed strongly
supports the notion that institutions in general (Barro
1996; Sala-I-Martin 1996; Acemoglu et al. 2001) and
IPR protection in particular (Varsakelis 2001;
Branstetter et al. 2006; Kanwar 2006; Allred and Park
2007) contribute to growth performance. However,
this same literature does not support the premise that
more and stronger protection is always better.
Instead, evidence of an inverted-U-shaped
relationship is growing (Gould and Gruben 1996), and some
theoretical arguments for such a relationship have
already been proposed; for example, Nordhaus (1969)
pointed out that static efficiency losses need to be
traded off against dynamic innovation gains, and
several other mechanisms have been suggested in
what one might label the patent literature.1 This
literature, however, relies largely on partial
equilibrium modeling techniques. This makes it difficult to
evaluate the importance of these mechanisms for
overall economic growth and innovation. Analyzing
the trade-offs in the context of general equilibrium,
endogenous innovation-driven growth models is a
recent research trajectory aimed at connecting these
two literatures, and the area of focus in this paper.
Nordhauss arguments, for example, have been
formalized in general equilibrium innovation-driven
growth models by Kwan and Lai (2003) and Iwaisako
and Futagami (2003). Both papers show that static
losses can be weighed against dynamic gains, and
thus, an optimum level of protection exists. Horii and
Iwaisako (2007) and Furukawa (2007) focus on the
reduced growth potential in an economy with more
monopolized sectors. However, as ODonoghue and
Zweilmueller (2004) observe, little further analysis of
1 There exists, for example, a literature in contract theory (e.g.,
Grossman and Hart 1986; Aghion and Tirole 1994) as well as a
large industrial organization literature on the strategic use of
patents (e.g., Teece 1986, 2006) and the implications for
optimal patent policy design. In particular, issues such as
disclosure in sequential innovation processes, fragmented
innovation processes, and cumulative or cooperative research
projects have been addressed. Examples of papers in this
literature include Gilbert and Shapiro (1990), Gallini (1992),
Scotchmer (1991), Green and Scotchmer (1995), Chang
(1995), Matutes et al. (1996), Scotchmer (1996), Van Dijk
(1996), ODonoghue (1998), ODonoghue et al. (1998), Hunt
(19 (...truncated)