Intellectual Property Rights and the
Knowledge Spillover Theory of
Entrepreneurship
Max Planck Institute
9 September 2008
Jena
Mark Sanders
Utrecht School of Economics
Max Planck Institute of Economics
[email protected]
Motivation
Schumpeter and Endogenous Growth Theory
Innovation vs. Invention
Who gets rents?
Opportunities vs. Ideas
The source of vs. the bottleneck in innovation
Growth and Ideas; the basic model structure
Consumers
Producers/Intermediates
Invention, Innovation and Growth
Patents and the US Patent Reform:
Patents and the Bargain over Rents
Incentives for Knowledge Creation
Incentives for Knowledge Commercialization
Outcomes
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
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:

Vq (T )  Vn (T )   e  r (t )t π(i, t )dt
T
Produce ideas according to:
n  f (n, LR& D )
q  f (q, LR& D )
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
patents to internalize part of the spillovers
Patents
Historical:
Royal Favor and Revenue
Inventions and Innovations
Knowledge and Ideas
Recent US reforms
The Rationale:
Knowledge creation is source of growth
Patents reward knowledge creation
Patent protection stimulates growth
Incentives and Rewards:
But what drives knowledge creation?
And what drives invention?
And what drives innovation?
A Model
(Acs and Sanders 2008)
Consumers of
final good C
Producers of
final good C
Labor
Market
Capital
Market
Producers of n
intermediate
goods
A Model
(Acs and Sanders 2008)
Consumers (standard)

max :  e  ρ(τ  t ) log(C τ )dτ
Et
t
s.t. : Yt  rBt  Ct  B t
C t / Ct  r  ρ
A Model
(Acs and Sanders 2008)
Final Goods Producers

max
X j (t ), LPj (t ), LRj (t )
Vj   e
0
 rt
n(t )


 X j (t )  w(t )LPj (t )  LRj (t )   χ(i, t )x j (i, t )dt
i 0


n(t )
s.t. : X j (t )  Aj (t )α LPj (t )β  x j (i, t )1 α  β
i 0
A j (t )  Aj (t )1γ n(t )γ LRj (t )
lj 
βX j
w
1
χ(i )
D
x j (i ) 
n
 χ(i)
α β
α  β 1
α β
(1  α  β)X j
i 0
βX
L
w
1
χ(i )
D
x(i ) 
n
 χ(i)
i 0
α β
α  β 1
α β
(1  α  β)X
A Model
(Acs and Sanders 2008)
Final Goods Producers (R&D)
Hj  e
H j
LRj
 rt

n
 α β n

γ γ
1 γ
1 α  β
 Aj LPj  x j (i )
 ψAj n LRj ξΠ  w LPj  LRj    χ(i )x j (i )  λj Aj nγ LRj
i 0
i 0


 0  e  rt (ψAγ nγ ξΠ  w)  λj Aj
1γ
nγ
H j
 α 1 β n

γ
  λ j  e  rt  Aj LPj  x j (i )1 α  β  γψ Aγ 1nγ ξΠ  (1  γ )λj Aj nγ LRj
Aj
i 0


lim λj (t ) Aj (t )  0
t 
H j
λj
wRj
1γ
 A j  Aj nγ LRj
 / Π)ξΠ)ψA γ nγ
(αX j  (r  Π
j

r  w R / wR  γn / n

A Model
(Acs and Sanders 2007)
Intermediate Goods Producers
max : π(i)  χ(i)x(i)  rK (i)
χ (i )
x(i )  K (i )
1
x(i )D 
χ(i )
n
 χ(i)
α β
α  β 1
α β
(1  α  β)X
i 0
χ(i ) 
r
1α  β
π(i) 
(α  β)(1  α  β)X
n
A Model
(Acs and Sanders 2007)
Intermediate Goods Producers (Entry)

VE (T )   e
 rt
T

π(i, t )dt  (α  β)(1  α  β) e
 rt
T
n  φAδ n1 δ LE
Entry-Arbitrage:
(α  β)(1  α  β)(1  ξA / A)
~
w
φAδ n δ X
r  n / n  X / X
X (t )
dt
n(t )
A Model
(Acs and Sanders 2008)
Equilibrium in labor market:
~
wS  wR  w
E
A Model
(Acs and Sanders 2008)
Equilibrium
w
~
w
 /A0
n / n  A
1
 /A
0  n / n  A
A/n*
A/n
A Model
(Acs and Sanders 2008)
Equilibrium Steady State:
K
X
C
B w
n  2α  β 





 r  ρ  
K
X
C
B w
n α β 
A
 f (n / n)
n
LR φ  A 
  
LE
ψn
δ γ
L*  LP ;
1  LR  LE
A Model
(Acs and Sanders 2008)
New Features:
Captures spin-out/off
Captures upstream spillovers
(specialization)
Captures downstream spillovers
(opportunities)
Residual rents reward commercialization
Patents transfer rents from innovators to inventors
Results in line with new growth theory:
Growth Sub-Optimal
Both R&D and Entrepreneurs should be supported
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 may lead to lower innovation
Distinguishing entrepreneurs from R&D makes a difference
A Model
(Acs and Sanders 2008)
In the tradition of Schumpeter we:
…separate commercialization and invention,
…allocate the residual monopoly 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.
But we show that:
…patents are not needed to incentivize R&D and…
…strengthening patent protection may overshoot the target,
…as Jaffe and Lerner (2004) argue it has in the US.