Working Paper: CEPR ID: DP1971
Authors: Francesca Cornelli; Mark Schankerman
Abstract: In a model with moral hazard and assymmetric information, we show that it can be welfare-improving to differentiate patent lives when firms have different R&D productivities. A uniform patent life provides excessive R&D incentive to low-productivity firms, and too little to high ones. The optimally differentiated patent scheme can be implemented through a menu of patent lives (or renewals) and associated fees. We characterize the optimal mechanism, and use simulation analysis to compare it with existing patent renewal systems and to illustrate the potential welfare gains from the optimal policy.
Keywords: patent renewals; patent protection; R&D; mechanism design
JEL Codes: L51; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Differentiated patent lives (L15) | R&D incentives (O31) |
| Differentiated patent lives (L15) | Social welfare (I38) |
| Optimal patent scheme (O38) | Addressing asymmetric information (D82) |
| Uniform patent life (O34) | Excessive incentives for low-productivity firms (H32) |
| Uniform patent life (O34) | Insufficient incentives for high-productivity firms (D22) |