What form of intellectual property rights (IPR) policy contributes to economic growth? Should technological followers be able to license the products of technological leaders? Should a company with a large technological lead receive the same IPR protection as a company with a more limited lead? We develop a general equilibrium framework to investigate these questions… We prove the existence of a steady-state equilibrium and characterize some of its properties. We then quantitatively investigate the implications of different types of IPR policy on the equilibrium growth rate. The two major results of this exercise are as follows. First, the growth rate in the standard models used in the (growth) literature can be improved significantly by introducing a simple form of licensing. Second, we show that full patent protection is not optimal from the viewpoint of maximizing the growth rate of the economy and that the growth-maximizing policy involves state-dependent IPR protection, providing greater protection to technological leaders that are further ahead than those that are close to their followers. This form of the growth-maximizing policy is a result of the “trickle-down” effect, which implies that providing greater protection to firms that are further ahead of their followers than a certain threshold increases the R&D incentives also for all technological leaders that are less advanced than this threshold. [emphasis added]
Given the credentials of the authors, I’m sure the theoretical work is outstanding (non-gated version here). But state-dependent IPR protection strikes me as implausible in practice. How adept are government bureaucrats at identifying technological leaders and the size of their lead? How resistant are they to regulatory capture?