Growth Maximizing Patent Life-Time

Using a vertical differentiation model of endogenous growth with stochastic R&D activity, we characterize the optimal patent life-time the government would set in order to maximize economic growth. We show that a finite patent life-time does exist and is unique provided that the expected rate of return from R&D is sufficiently large. Additionally, we analyze the impact of the level of competition in R&D sector, the interest rate, the level of monopoly profit and the productivity parameter of research technology on this optimal patent life-time.