DP3974 Innovations, Patent Races and Endogenous Growth

Author(s): Joseph Zeira
Publication Date: July 2003
Keyword(s): endogenous growth, innovations, patent races, R&D sector
JEL(s): O31, O40
Programme Areas: International Macroeconomics, Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3974

This Paper presents a model of innovations and economic growth, in which patent rates emerge endogenously, as a result of two assumptions: first, R&D is innovation-specific, second, marginal cost of innovation is increasing. The Paper then examines the effects of patent races on growth, welfare, and the market structure of R&D, and derives three main results. The first is that patent races reduce significantly the effect of scale on growth. The second result is that R&D is Pareto-inefficient, as too many researchers look for the easy innovations, while too few search for the difficult ones. The third result is that risk aversion leads to concentration of R&D in few firms, to reduce risk of patent race. Interestingly this does not contribute to growth but rather to more duplication.