Patent Renewals and R&D Incentives
Posted: 22 Feb 1999
In a model with moral hazard and asymmetric information, we show that it can be welfare improving to differentiate patent lives when firms have different R&D productivities. A uniform patent life provides too much R&D incentive to low-productivity firms and too little to high-productivity ones. The optimally differentiated patent scheme can be implemented through a menu of patent lives (or renewals) and associated fees. We characterize the optimal mechanism and use simulation analysis to compare it with existing patent renewal systems and to illustrate the potential welfare gains from the optimal policy.
JEL Classification: O31, O32, O34
Suggested Citation: Suggested Citation