Innovation Process and Policy: What Do We Learn from New Growth Theory?
Because entrepreneurs’ incentives to innovate depends on the gap between the post innovation rent and the pre-innovation rent—call it the net innovation rent. And typically, what competition does is to lower pre- innovation rents, also maybe the post- innovation rents, although the difference between post- and pre-innovation rents will typically increase with competition, and all the more so with stronger patents that protect post- innovation rents more. In contrast, in our earlier Schumpeterian model where innovations are made by outsiders who then leap- frog incumbent fi rms, the pre- innovation rent is always equal to zero, thus all competition does in this case is to reduce the post-innovation rent, which is also equal to the net innovation rent. Thus, it is no wonder why higher competition reduces innovation incentives in this earlier model…Yi Qian (Northwestern), in a recent paper published in ReStat, uses the passage of national pharmaceutical patent law as a natural experiment to test the economic impact of patent. She finds that implementation of patents stimulates innovation, mostly in countries with higher market freedom. Similarly, in current work with Peter Howitt and Susanne Prantl, we look at the effects of implementation of the single market program on R&D expenditures in countries with different degrees of IPR. Thus we look at thirteen manufacturing industries in fi fteen OECD countries between 1987 and 2005, and we find that the implementation of the single market program leads to an increasing R&D expenditure in countries with strong IPR, not in others. And the positive response of R&D expenditure to the single market program in strong IPR countries is more pronounced among firms in industries whose equivalent in the United States indicate higher patent intensity. Thus, there truly seems to be a complementarity between IPRs and competition, unlike what Boldrin and Levine suggest.