Professor Vincenzo Denicolo

Department of Economics

This lecture has been cancelled due to unforeseen circumstances.

Lecture Summary

How much patent protection should be accorded inventors and innovators? Is protection too strong or too weak? Over the years, these questions have spawned heated controversies. Today, both economists and practitioners are increasingly voicing concerns that patent protection may be excessive.

I shall discuss whether and to what extent this claim is supported by economic analysis. The optimal level of patent protection is the outcome of various trade-offs, the most basic and important of which is probably the trade-off  between rapid innovation and static allocative distortion. Given that there are many opposite effects at work, it is clear that theory alone cannot provide answers.

The empirical literature has attacked the problem by trying to measure the quantitative impact of actual changes in patent policy. However, robust empirical findings have proven to be disappointingly elusive.

I reformulate the theory to highlight the relationship between the level of patent protection and the elasticity of the supply of inventions. This elasticity has been empirically estimated in various literatures, most notably the innovation production function literature. This literature assesses how R&D expenditures generate innovative technological knowledge. A number of empirical studies have found a strong relationship between R&D spending and inventions, with an elasticity as high as 0.5 or more.

In a baseline model of stand-alone innovations, this elasticity is the sole determinant of the optimal degree of protection. Thus, the estimated elasticity offers a benchmark for assessing whether the level of patent protection is too high, too low, or near optimal. I then provide a preliminary assessment, which is that the preponderance of the empirical evidence suggests that in the aggregate patents do not over-compensate innovators.

Moving beyond the baseline model, I analyse a number of extensions to determine the sign, if not the magnitude, of additional effects. In particular, I will discuss the claim that stronger patent protection may impede rather than promote technical progress when innovation is cumulative and exhibits strong complementarities, and the claim that analyses based on the assumption that the patent system “works” may fail to capture the increasing complexity of modern technology and the pervasiveness of rent-seeking.