Special Interest Politics and Intellectual Property Rights: An Economic Analysis of Strengthening Patent Protection in the Pharmaceutical Industry

Since the 80’s, the pharmaceutical industry has benefited substantially from a series of policy changes that have strengthened the patent protection for brand-name drugs as a result of the industry’s political influence. This paper incorporates special interest politics into a quality-ladder model to analyze the policymakers’ tradeoff between the socially optimal patent length and campaign contributions. The welfare analysis suggests that the presence of a pharmaceutical lobby distorting patent protection is socially undesirable in a closed-economy setting but may improve social welfare in a multi-country setting, which features an additional efficiency tradeoff between monopolistic distortion and international free-riding on innovations.campaign contributions; intellectual property rights; patent length; special interest politics

Economic Growth and Patent Policy: Quantifying the Effects of Patent Length on R&D and Consumption

Is the patent length an effective policy instrument in stimulating R&D? This paper develops a generalized variety-expanding growth model and then calibrates the model to the aggregate data of the US economy to analyze the effects of extending the patent length. The numerical exercise suggests that at the empirical range of patent-value depreciation rates, extending the patent length beyond 20 years leads to only a very small increase in R&D despite R&D underinvestment in the market economy. On the other hand, shortening the patent length can lead to a significant reduction in R&D and consumption. This paper also makes use of the dynamic general-equilibrium framework to examine the fraction of total factor productivity (TFP) growth that is driven by R&D, and the calibration exercise suggests that about 35% to 45% of the long-run TFP growth in the US is driven by R&D. Finally, this paper identifies and analytically derives a dynamic distortion of the patent length on saving and investment in physical capital that has been neglected by previous studies, which consequently underestimate the distortionary effects of patent protection.endogenous growth; intellectual property rights; patent length; R&D

A Politico-Economic Analysis of the European Union’s R&D Policy

This paper provides a politico-economic analysis of the European Union’s (EU) R&D policy. It develops an open-economy R&D-growth model characterized by two parameters that capture respectively the degree of technology spillover and the effectiveness of lobbying. In a non-cooperative equilibrium, each country chooses the level of R&D subsidy independently and fails to internalize technology spillover. Consequently, R&D subsidy is underprovided. In an economic union, the central government internalizes technology spillover but is vulnerable to lobbying by politicians from each country, who attempt to free-ride on the central government budget. Consequently, R&D subsidy is overprovided; however, this overprovision becomes less severe as the degree of technology spillover increases. Therefore, technology spillover has a surprisingly positive effect on welfare in an economic union. As for the effect on relative welfare, there is a cutoff value for the degree of technology spillover such that if and only if spillover is above this threshold, then an economic union dominates independent countries in welfare. Furthermore, this threshold is an increasing function in the effectiveness of lobbying. This paper also considers the possibility that the EU faces a binding budget ceiling. In this case, lobbying on R&D subsidy exerts a distortionary effect on revenue allocation, and hence a welfare loss continues to exist.endogenous growth; policy coordination; lobbying; R&D subsidy

Effects of Patent Length on R&D: A Quantitative DGE Analysis

This paper develops an R&D-growth model and calibrates the model to aggregate data of the US economy to quantify a structural relationship between patent length, R&D and consumption. Under parameter values that match the empirical flow-profit depreciation rate of patents and other key features of the US economy, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. In contrast, shortening the patent length leads to a significant reduction in R&D and consumption. Finally, this paper also analytically derives and quantifies a dynamic distortionary effect of patent length on capital investment.innovation-driven growth; intellectual property rights; patent length; R&D

Macroeconomic Effects of Intellectual Property Rights: A Survey

This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent-policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this survey draws the following conclusions from the literature. Firstly, different patent-policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.economic growth; innovation; intellectual property rights

The Escape-Infringement Effect of Blocking Patents on Innovation and Economic Growth

This study develops a Schumpeterian growth model to analyze the effects of different patent instruments on innovation. We first analyze patent breadth that captures the traditional positive effect of patent rights on innovation. Then, we consider a profit-division rule between entrants and incumbents. Given the division of profit, increasing the share of profit assigned to incumbents reduces entrants' incentives for innovation. This aspect of blocking patents captures the recently proposed negative effect of patent rights on innovation. Finally, blocking patents generate a non-monotonic effect on innovation when the step size of innovation is endogenous due to a novel escape-infringement effect. Calibrating the model to aggregate data, we find that a marginal increase in the blocking effect of patent protection is likely to raise economic growth.economic growth; innovation; intellectual property rights

From China with love: Effects of the Chinese economy on skill-biased technical change in the US

In this study, we analyze the effects of labor shortage in China on the direction of innovation in the US by incorporating production offshoring into a North-South model of directed technical change. We �find that if offshoring is present (absent) in equilibrium, then a decrease (an increase) in unskilled labor in the South would lead to skill-biased technical change in the North. This fi�nding highlights the different implications of offshoring and conventional trade on innovation. Furthermore, we �find that an increase in the Southern stock of capital reduces offshoring and also leads to skill-biased technical change. Therefore, rapid capital accumulation and labor shortage in China could lead to a rising skill premium in the US. Calibrating the model to China-US data, we �find that a 1% decrease in unskilled labor (1% increase in capital) in China leads to a 0.8% (0.6%) increase in the skill premium in the US under a moderate elasticity of substitution between skill-intensive and labor-intensive goods

Advanced Macroeconomics for Undergraduates

This manuscript covers selected topics in advanced macroeconomics at the undergraduate level. It builds on materials in intermediate macroeconomics textbooks (e.g., Barro et al., 2017) by covering the mathematics of some basic dynamic general-equilibrium models, which are designed to give undergraduate students a firm appreciation of modern developments in macroeconomics. Chapter 1 begins with a simple static model to demonstrate the concept of general equilibrium. Then, Chapter 2 to 4 cover the neoclassical growth model to explore the effects of exogenous changes in the level of technology. Chapter 5 to 7 use the neoclassical growth model to explore the effects of fiscal policy instruments, such as government spending, labour income tax and capital income tax. Chapter 8 develops a simple new Keynesian model to analyze the effects of monetary policy. Chapter 9 begins the analysis of economic growth by reviewing the Solow growth model. Chapter 10 to 12 present the Ramsey model and introduce different market structures to the model to lay down the foundation of the Romer model. Chapter 13 incorporates an R&D sector into the Ramsey model with a monopolistically competitive market structure to develop the Romer model of endogenous technological change. Chapter 14 to 15 examine the implications of the Romer model. Chapter 16 concludes this manuscript by presenting the Schumpeterian growth model and examining its different implications from the Romer model

Status-Seeking Culture and Development of Capitalism

According to Werner Sombart's classic text Luxury and Capitalism, the status-seeking behavior of individuals may facilitate the development of capitalism and give rise to an early industrialization. In this study, we develop a growth-theoretic framework to formalize this hypothesis by introducing a status-seeking preference into the Schumpeterian growth model of endogenous takeoff. Then, we use the model to explore how this cultural preference affects the transition of an economy from pre-industrial stagnation to modern economic growth. We find that a stronger preference for status seeking causes an earlier takeoff and a positive effect on economic growth in the short run but an overall ambiguous effect on growth in the long run. We also calibrate the model to data to perform a quantitative analysis and find that a stronger status-seeking preference reduces the steady-state equilibrium growth rate under reasonable parameter values. Therefore, the effects of status-seeking behaviors evolve across different stages of economic development

EFFECTS OF R&D SUBSIDIES IN A HYBRID MODEL OF ENDOGENOUS GROWTH AND SEMI-ENDOGENOUS GROWTH

We explore R&amp;D subsidies in a hybrid growth model which may exhibit semi-endogenous growth or fully endogenous growth. We consider two types of subsidies on variety-expanding innovation and quality-improving innovation. R&amp;D subsidies on quality-improving innovation only have effects in the fully endogenous-growth regime, in which more subsidies cause an earlier activation of quality-improving innovation and increase the transitional/steady-state growth rate. R&amp;D subsidies on variety-expanding innovation have contrasting effects in the two regimes. In the semi-endogenous-growth regime, more subsidies on variety-expanding innovation increase transitional growth but have no effect on steady-state growth. In the fully endogenous-growth regime, more subsidies on variety-expanding innovation continue to increase short-run growth but delay the activation of quality-improving innovation and reduce long-run growth. Increasing subsidies on variety-expanding (quality-improving) innovation makes the semi-endogenous-growth (fully endogenous-growth) regime more likely to emerge. Finally, we calibrate the model and find that under reasonable parameter values, the fully endogenous-growth regime is more likely to emerge.</jats:p