Working Paper: CEPR ID: DP3974
Authors: Joseph Zeira
Abstract: 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.
Keywords: endogenous growth; innovations; patent races; R&D sector
JEL Codes: O31; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Patent races (O34) | effect of scale on growth (O40) |
| Patent races (O34) | misallocation of resources in R&D (O32) |
| Risk aversion (D81) | concentration of R&D in fewer firms (O32) |
| concentration of R&D in fewer firms (O32) | less innovation overall (O39) |
| Increased R&D activity (O39) | larger patent races (D45) |
| Larger patent races (D45) | innovation rates (O39) |