Patent Policy, R&D and Economic Growth.

The literature on R&D-driven economic growth suggests that technological innovations result from entrepreneurial activities such as R&D investments. In the first two chapters of this dissertation, I develop tractable frameworks to characterize and quantitatively evaluate the effects of patent policy on R&D and economic growth. In the final chapter, I analyze the political economy of patent policy.What are the effects of blocking patents on R&D and consumption? To answer this question, I develop a generalized quality-ladder growth model with overlapping intellectual property rights and calibrate the model to aggregate data of the US economy to quantify the inefficiency in the patent system. 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 consumption of 4% per year. Is the patent length an effective policy instrument in stimulating R&D? To answer this question, I develop a generalized variety-expanding growth model and calibrate the model to aggregate data to quantify the effects of patent extension. At the empirical patent-value depreciation rates, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. On the other hand, shortening the patent length can lead to a significant reduction in R&D and consumption. The calibration exercise also suggests that about 35% to 45% of the long-run total factor productivity growth in the US is driven by R&D. What are the welfare implications of pharmaceutical lobbying? Since the 80’s, the pharmaceutical industry has benefited substantially from the strengthening of patent protection for brand-name drugs as a result of the industry’s political influence. To analyze this phenomenon, I incorporate special interest politics into a quality-ladder growth model to consider 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 global welfare in a multi-country setting, which features an additional efficiency tradeoff between monopolistic distortion and international free-riding on innovations.