Abstract
I develop a general equilibrium model in which patent protection can increase or decrease the costs of sequential innovation, original innovation, and imitation. Depending on these relative effects, protection can in theory increase or decrease markups, imitation, innovation, growth, and aggregate productivity. I discipline the model using data from several different sources, and find that weakening protection in the U.S. would lead to no change in markups and imitation, no change in long-run growth, a significant increase in the number of firms, and an increase in aggregate productivity of 11%.
Acknowledgments
I would like to thank the editor, an anonymous referee, Margarita Duarte, Gueorgui Kambourov, Matt Mitchell, Adam Nowak, Diego Restuccia, Roberto Samaniego, Xiaodong Zhu, and seminar and conference participants at the University of Cambridge, the University of Pittsburgh, the University of Rochester, the University of Toronto, and West Virginia University for valuable comments and suggestions.
A.1 Density Function
Here I derive the density function of h
[1], the best of N draws of h, conditional on the distribution of h and the number of draws N. If h is distributed according to a continuously differentiable distribution F (h) between 0 and
where
defined over all
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