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Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship. EEA-ESEM Conference 27 August 2009 Barcelona. Zoltan Acs George Mason University Max Planck Institute of Economics Fairfax (VI) Mark Sanders Utrecht School of Economics Max Planck Institute of Economics

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Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

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  1. Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship EEA-ESEM Conference 27 August 2009 Barcelona Zoltan Acs George Mason University Max Planck Institute of Economics Fairfax (VI) Mark Sanders Utrecht School of Economics Max Planck Institute of Economics m.w.j.l.sanders@uu.nl

  2. Motivation Schumpeter and Modern Endogenous Growth Theory: The Entrepreneur and the Inventor Opportunities and Ideas Innovation and Invention Who gets the rents of innovation? But does it really matter in the end? Intellectual Property Rights Protection: Patents and the Bargain over Rents Providing Incentives for Knowledge Creation Hurting Incentives for Knowledge Commercialization Outcomes

  3. Outline Patents and the US Patent Reform: Historical The Rationale for Patent Protection The Debate on Optimal Patent Protection Modern Endogenous Growth Theory: The Basic Model Structure Results on Patent Protection Policy Entrepreneurship, Knowledge Spillovers and Growth: Our Model and Contribution Our Results on Patent Protection Policy

  4. Patents Historical: Royal Favor and Revenue Inventions and Innovations Knowledge and Ideas Recent US reforms Federal Appeals Court Finance PTO out of Fees on Patents Granted The Rationale: Knowledge creation is source of growth… … and patents reward knowledge creation… …so patent protection stimulates growth. The Debate (e.g J&L (2004) vs K&E (2003)): Is stronger protection always better? Static loss versus dynamic gains Incentives and dynamic loss

  5. Growth and Ideas Basic Structure: Consumers 1. Willing to save 2. Demand for innovations Basic Structure: Producers 1. Make profit (imperfect competition) 2. Demand production factors

  6. Growth and Ideas Basic Structure: Inventors/Innovators 1. Make zero-profit (free entry) 2. Need to demand R&D factors Auction off ideas at willingness to pay: Produce ideas according to:

  7. Growth and Ideas Basic Structure: 1. Growth is positive for positive R&D 2. Sub-optimal in case of spillovers Intra-temporal knowledge spillovers Inter-temporal knowledge spillovers Positive steady state growth requires: latent demand for innovation imperfect competition appropriation of rents by new knowledge creators increasing returns to scale in aggregate production Optimal growth requires: stimulation of knowledge creation patent protection to internalize positive spillovers

  8. Labor Market Capital Market Our Model (Acs and Sanders 2009) Consumers of final good C Producers of final good C Producers of n intermediate goods

  9. Our Model (Acs and Sanders 2009) Consumers (standard)

  10. Our Model (Acs and Sanders 2009) Final Goods Producers

  11. Our Model (Acs and Sanders 2009) Final Goods Producers (R&D)

  12. Our Model (Acs and Sanders 2009) Intermediate Goods Producers

  13. Our Model (Acs and Sanders 2009) Intermediate Goods Producers (Entry) Entry-Arbitrage:

  14. Our Model (Acs and Sanders 2009) Equilibrium in educated labor market:

  15. Our Model (Acs and Sanders 2009) Equilibrium 1 A/n* A/n

  16. Our Model (Acs and Sanders 2009) Equilibrium Steady State:

  17. Our Model (Acs and Sanders 2009) New Features: Captures spin-out/off Captures upstream spillovers (specialization) Captures downstream spillovers (opportunities) Residual rents reward commercialization Transfer of rents from innovators to inventors Results in line with new growth theory: Growth Sub-Optimal Case for R&D and Entrepreneurs subsidy R&D more than Entrepreneurs More patent protection means more R&D… Results in contrast to new growth theory: …but also less commercialization. Too much protection leads to lower innovation Distinguishing entrepreneurs makes a difference

  18. Our Contributions In the tradition of Schumpeter we: …separate commercialization and invention, …allocate the residual 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. And we show that: …patents are not needed to incentivize all R&D and… …may reduce incentives to commercialize… …so patent protection may overshoot its target… …as Jaffe and Lerner (2004) argue it has in the US. A better policy would support R&D and entrepreneurs… …by clearing the knowledge filters between them.

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