intellectual property rights and the knowledge spillover theory of entrepreneurship

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Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship Zoltan Acs George Mason University Max Planck Institute of Economics Fairfax (VI) Mark Sanders Utrecht School of Economics Max Planck Institute of Economics [email protected] NAKE Day 24 October 2008 Utrecht

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Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship. NAKE Day 24 October 2008 Utrecht. Zoltan Acs George Mason University Max Planck Institute of Economics Fairfax (VI) Mark Sanders Utrecht School of Economics Max Planck Institute of Economics - PowerPoint PPT Presentation

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Page 1: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Zoltan AcsGeorge Mason University

Max Planck Institute of EconomicsFairfax (VI)

Mark SandersUtrecht School of Economics

Max Planck Institute of [email protected]

NAKE Day24 October 2008Utrecht

Page 2: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

MotivationPatents and the US Patent Reform:

Patents and the Bargain over RentsIncentives for Knowledge CreationIncentives for Knowledge CommercializationOutcomes

Growth and Ideas; the basic model structureConsumersProducers/Intermediates

Invention, Innovation and Growth Schumpeter and Endogenous Growth Theory

Innovation vs. InventionWho gets rents?Opportunities vs. IdeasThe source of vs. the bottleneck in innovation

Page 3: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

PatentsHistorical:

Royal Favor and RevenueInventions and InnovationsKnowledge and Ideas Recent US reforms

The Rationale:Knowledge creation is source of growthPatents reward knowledge creationPatent protection stimulates growth

Incentives and Rewards:But what drives knowledge creation?And what drives invention?And what drives innovation?

Page 4: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Growth and IdeasBasic Structure: Consumers

1. Willing to save2. Demand for innovations

Basic Structure: Producers1. Make profit (imperfect competition)

2. Demand production factors

Page 5: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Growth and IdeasBasic Structure: Inventors/Innovators

1. Make zero-profit (free entry)2. Need to demand R&D factors

dttiπeTVTVT

ttrnq ),()()( )(

Auction off ideas at willingness to pay:

),(

),(

&

&

DR

DR

Lqfq

Lnfn

Produce ideas according to:

Page 6: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

Growth and IdeasBasic Structure:

1. Growth is positive for positive R&D2. Sub-optimal in case of spillovers

Intra-temporal knowledge spilloversInter-temporal knowledge spilloversPositive steady state growth requires:

latent demand for innovationimperfect competition appropriation of rents by new knowledge creatorsincreasing returns to scale in aggregate production

Optimal growth requires: stimulation of knowledge creationpatents to internalize part of the spillovers

Page 7: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Producers of final good C

Consumers of final good C

Producers of n intermediate

goods

Capital Market

Labor Market

Page 8: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

tttt

tτρ

E

BCrBYts

τdCet

:..

)log(:max )(

ρrCC tt /

Consumers (standard)

Page 9: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Final Goods Producers

w

Xβl jj

wXβ

L

)(

0

1),()()()(:..tn

i

βαj

βPj

αjj tixtLtAtXts

dttixtiχtLtLtwtXeVtn

ijRjPjj

rtj

tLtLtX RjPjj

0

)(

0)(),(),(

),(),()()()()(max

jn

i

βαβα

βαD

j Xβα

iχix )1(

)(

)()(

0

1

1

Xβα

iχix

n

i

βαβα

βαD )1(

)(

)()(

0

1

1

)()()()( 1 tLtntAtA Rjγγ

jj

Page 10: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Final Goods Producers (R&D)

Rjγγ

jjj

j

jjt

Rjγγ

jjγγ

n

i

βαj

βPj

αj

rtj

j

j

γγjj

γγrt

Rj

j

LnAAλ

H

tAtλ

LnAλγξnAγψixLAeλA

H

nAλwξnAψeL

H

1

1

0

11

1

0)()(lim

)1(Π)(

)Π(0

Rjγγ

jj

n

ijRjPjRj

γγj

n

i

βαj

βPj

αj

rtj LnAλixiχLLwξLnAψixLAeH

1

00

1 )()(Π)(

nnγwwr

nAψξrXαw

RR

γγjj

Rj //

)Π)Π/Π((

Page 11: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2007)

Intermediate Goods Producers

)()()()(:max)(

irKixiχiπiχ

Xβα

iχix

iKix

n

i

βαβα

βαD )1(

)(

)()(

)()(

0

1

1

βαr

1

)(n

Xβαβαiπ

)1)(()(

Page 12: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2007)

Intermediate Goods Producers (Entry)

dttntX

eβαβαdttiπeTVT

rt

T

rtE )(

)()1)((),()(

Eδδ LnAφn 1

XnAφXXnnr

AAξβαβαw δδ

//

)/1)(1)((~

Entry-Arbitrage:

Page 13: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Equilibrium in labor market:

ERS www ~

Page 14: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Equilibrium

A/n

1

A/n*

AAnn //0

0// AAnn

ww~

Page 15: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

Equilibrium Steady State:

)/( nnfnA

γδ

E

R

nA

ψφ

LL

βαβα

nn

ρrww

BB

CC

XX

KK 2

ER

P

LL

LL

1

;*

Page 16: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

New Features:Captures spin-out/offCaptures upstream spillovers (specialization)

Captures downstream spillovers (opportunities) Residual rents reward commercializationTransfer of rents from innovators to inventors

Results in line with new growth theory:Growth Sub-OptimalCase for R&D and Entrepreneurs subsidyR&D more than EntrepreneursMore patent protection means more R&D…

Results in contrast to new growth theory:…but also less commercialization.Too much protection leads to lower innovation Distinguishing entrepreneurs makes a difference

Page 17: Intellectual Property Rights and the Knowledge Spillover Theory of Entrepreneurship

A Model (Acs and Sanders 2008)

In the tradition of Schumpeter we:…separate commercialization and invention,…allocate the residual 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……patent protection may overshoot the target,…as Jaffe and Lerner (2004) argue it has in the US.