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Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

This seminar discusses the role of intellectual property rights and the knowledge spillover theory of entrepreneurship in fostering innovation and economic growth. It explores the rationale for patents, the US patent system reforms, and the implications for economic development. The seminar also examines the challenges and opportunities in innovation and discusses a model for growth and ideas.

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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 TKI-internal seminar 7 April 2008 Utrecht Mark Sanders Utrecht School of Economics Max Planck Institute of Economics m.sanders@econ.uu.nl

  2. Motivation The Patent System; Rationale for Patents Growth and Ideas, Jones (2006) US patent system reforms in 80s Lerner and Jaffe (2004): “They fixed it, now it’s broken”. The Fall-Out Schumpeter vs. Endogenous Growth Theory Innovation vs. Invention Who gets the rents and for what? Opportunities recognition vs. Idea creation Bottlenecks in Innovation A new Model

  3. Growth and Ideas Basic Structure: Consumers 1. Need to be willing to save 2. Need to have latent demand for innovations Basic Structure: Producers 1. Need to make profit 2. Need to demand factors

  4. 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:

  5. 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 (patent protection) appropriation of rents by inventors=innovators increasing returns to scale in aggregate production Growth requires appropriation of ideas Optimal growth requires stimulation of knowledge creation

  6. Patent Reform What the Doctor Prescribes: 1. Growth Requires IPR-protection 2. Broaden Scope of Patents 3. Lower (all) Costs of Patent Applications 4. Uphold Patents in Infringement Suits 5. Reduce Uncertainty in Legal System The US Patent Reform: 1. Fees-financed Patent Office Drop in evaluation time per patent Broadening of scope Lower costs and quality 2. One Federal Patent Infringement Court Lower uncertainty (no jury) Burden of proof Increased bias favoring patent holder

  7. The Fall-Out New Symptoms: 1. Patent Hoarding 2. The Rembrandts in the Attic 3. Extorting Rents from Entrepreneurs 4. Patent Licensing Firms 5. More patents/no (extra) growth The Cure is worse than the Disease: 1. Incentives to commercialize are reduced 2. Incentives to patent are increased 3. We need to separate the two 4. Sources of opportunity are plenty 5. Commercialization is driven by rents

  8. Capital Market Labor Market A Model (Acs and Sanders 2008) Consumers of final good C Producers of final good C Producers of n intermediate goods Entry

  9. A Model (Acs and Sanders 2008) Features: Spillover R&D=>Entrepreneurs proportional Spillover Entrepreneurs=>R&D less than proportional Growth does not require IPR-protection Growth is Sub-Optimal Both R&D and Entrepreneurs should be supported R&D more than Entrepreneurs Rents reward commercialization (not knowledge creation) Opportunity is pure spillover from (process) R&D Process R&D is self sustaining/financed And generates a positive externality IPR-protection may internalize that externality But that is not the most direct/efficient way

  10. A Model (Acs and Sanders 2008) In the tradition of Joseph Schumpeter we: …separate commercialization and invention, …allocate the monopoly rents to the entrepreneur, …assume opportunity to be a costless spillover/externality …but also endogenize knowledge creation. We argue that the US-patent reforms… … tipped the balance in allocating rents… … in favor of knowledge creation… … as modern growth theory says it should. In an economy in which commercialization is the main bottleneck, this reform will backfire.

  11. A Model (Acs and Sanders 2008) Consumers (standard)

  12. A Model (Acs and Sanders 2008) Final Goods Producers

  13. A Model (Acs and Sanders 2008) Final Goods Producers (R&D)

  14. A Model (Acs and Sanders 2007) Intermediate Goods Producers

  15. A Model (Acs and Sanders 2007) Intermediate Goods Producers (Entry) Entry-Arbitrage:

  16. A Model (Acs and Sanders 2008) Equilibrium in labor market:

  17. A Model (Acs and Sanders 2008) Equilibrium 1 A/n* A/n

  18. A Model (Acs and Sanders 2008) Equilibrium Steady State:

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