The length of patents and the timing of innovation

This version supersedes earlier versions circulated between 2009 and 2013 and titled “Capitalizing Implementation Cycles” and “Implementation Cycles: Investment-Specific Technological Change and the Length of Patents.”This article evaluates the effects of patent rights on the timing of innovation. As in Shleifer (1986), firms in different sectors receive cost-saving ideas exogenously and sequentially, from which they can make temporary monopoly profits. In the presence of sectoral demand externalities, firms might opt to postpone the implementation of their ideas so that they innovate together with firms from other sectors. I show that a prolongation of patent rights limits the appeal of this possibility, and, for ideas which are not too radical, it can lead to a welfare improvement