Bulletin n. 2-3/2012 | ||
October 2012-February 2013 | ||
Lai Edwin L.-C., Yan Isabel K.M. |
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Would global patent protection be too weak without international coordination? | ||
in Journal of International Economics , Volume 89, Issue 1, January 2013 , 2013 , Pages 42-54 | ||
In the standard model with free trade and social-welfare-maximizing governments à la Grossman and Lai (2004), cross-border positive policy externalities result in countries choosing a combination of patent strengths that is weaker than optimal from a global perspective. This paper introduces three new features to the analysis: trade and FDI barriers, firm heterogeneity and political economy considerations in setting patent policies. Based on calibration, we find that there would be global under-protection of patent rights when there is no international policy coordination. The empirical fact that firm revenues follow a fat-tailed distribution implies that the barriers to exploit inventions internationally are quite low, despite the fact that only a small fraction of firms sell overseas and an even smaller fraction of firms carry out FDI as a result of trade barriers. Furthermore, requiring all countries to harmonize their patent standards with the equilibrium standard of the most innovative country (the US) does not lead to global over-protection of patent rights. | ||