Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship
Mark SandersUtrecht School of Economics
Max Planck Institute of [email protected]
Max Planck Institute9 September 2008Jena
MotivationSchumpeter and Endogenous Growth Theory
Innovation vs. InventionWho gets rents?Opportunities vs. IdeasThe source of vs. the bottleneck in innovation
Growth and Ideas; the basic model structureConsumersProducers/IntermediatesInvention, Innovation and Growth
Patents and the US Patent Reform:Patents and the Bargain over RentsIncentives for Knowledge CreationIncentives for Knowledge CommercializationOutcomes
Growth and IdeasBasic Structure: Consumers
1. Willing to save2. Demand for innovations
Basic Structure: Producers1. Make profit (imperfect competition)
2. Demand production factors
Growth and IdeasBasic Structure: Inventors/Innovators
1. Make zero-profit (free entry)2. Need to demand R&D factors
dttiπeTVTVT
ttrnq ),()()( )(
Auction off ideas at willingness to pay:
),(
),(
&
&
DR
DR
Lqfq
Lnfn
Produce ideas according to:
Growth and IdeasBasic Structure:
1. Growth is positive for positive R&D2. Sub-optimal in case of spillovers
Intra-temporal knowledge spilloversInter-temporal knowledge spilloversPositive steady state growth requires:
latent demand for innovationimperfect competition appropriation of rents by new knowledge creatorsincreasing returns to scale in aggregate production
Optimal growth requires: stimulation of knowledge creationpatents to internalize part of the spillovers
PatentsHistorical:
Royal Favor and RevenueInventions and InnovationsKnowledge and Ideas Recent US reforms
The Rationale:Knowledge creation is source of growthPatents reward knowledge creationPatent protection stimulates growth
Incentives and Rewards:But what drives knowledge creation?And what drives invention?And what drives innovation?
A Model (Acs and Sanders 2008)
Producers of final good C
Consumers of final good C
Producers of n intermediate
goods
Capital Market
Labor Market
A Model (Acs and Sanders 2008)
tttt
tτ
tτρ
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BCrBYts
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Consumers (standard)
A Model (Acs and Sanders 2008)
Final Goods Producers
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A Model (Acs and Sanders 2008)
Final Goods Producers (R&D)
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j
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n
i
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)Π)Π/Π((
A Model (Acs and Sanders 2007)
Intermediate Goods Producers
)()()()(:max)(
irKixiχiπiχ
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)(n
Xβαβαiπ
)1)(()(
A Model (Acs and Sanders 2007)
Intermediate Goods Producers (Entry)
dttntX
eβαβαdttiπeTVT
rt
T
rtE )(
)()1)((),()(
Eδδ LnAφn 1
XnAφXXnnr
AAξβαβαw δδ
//
)/1)(1)((~
Entry-Arbitrage:
A Model (Acs and Sanders 2008)
Equilibrium in labor market:
ERS www ~
A Model (Acs and Sanders 2008)
Equilibrium
A/n
1
A/n*
AAnn //0
0// AAnn
ww~
A Model (Acs and Sanders 2008)
Equilibrium Steady State:
)/( nnfnA
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R
nA
ψφ
LL
βαβα
nn
ρrww
BB
CC
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KK 2
ER
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1
;*
A Model (Acs and Sanders 2008)
New Features:Captures spin-out/offCaptures upstream spillovers (specialization)Captures downstream spillovers (opportunities) Residual rents reward commercializationPatents transfer rents from innovators to inventors
Results in line with new growth theory:Growth Sub-OptimalBoth R&D and Entrepreneurs should be supportedR&D more than EntrepreneursMore patent protection means more R&D…
Results in contrast to new growth theory:…but also less commercialization.Too much protection may lead to lower innovation Distinguishing entrepreneurs from R&D makes a difference
A Model (Acs and Sanders 2008)
In the tradition of Schumpeter we:…separate commercialization and invention,…allocate the residual monopoly rents to the entrepreneur,…assume opportunity to be a spillover.
In the tradition of Romer we:…see patents as (imperfect) claims to rents,…that incentivize knowledge creation.
But we show that:…patents are not needed to incentivize R&D and……strengthening patent protection may overshoot the target,…as Jaffe and Lerner (2004) argue it has in the US.
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