A Generalized Quality-Ladder Growth Model with Overlapping Intellectual Property Rights: Quantifying the Effects of Blocking Patents on R&D

What are the effects of blocking patents on R&D and consumption? This paper develops an R&D-driven endogenous growth model with overlapping intellectual property rights to quantify the inefficiency in the patent system. The analysis focuses on two policy variables: (a) patent breadth that determines the total profit received by a patent pool; and (b) the profit-sharing rule that determines the distribution of surplus between innovators. To quantify the inefficiency arising from blocking patents that are generated by these two policy variables, the model is calibrated to aggregate data of the US economy. Under parameter values that match key features of the US economy and show equilibrium R&D underinvestment, I find that eliminating blocking patents would lead to a conservatively estimated increase in R&D of 12 % and long-run consumption of 4 % per year. This paper also quantifies the transition-dynamic effects of patent policy and shows implications that are different from previous studies in important ways