A key parameter needed to inform optimal patent policy design is the elasticity of research investments with respect to the patent term. Estimating this elasticity is conceptually difficult because it requires constructing a counterfactual in which we can infer that some scientifically feasible inventions would have been brought to market under an alternative patent policy design. Despite a near half-century of research effort, we have essentially no credible empirical evidence on this elasticity. Our goal in this paper has been to make the theoretical and empirical literature on this question more accessible in hopes of encouraging the development of novel research approaches to this topic. Given that both theory and casual evidence suggest that this elasticity is likely to vary across different types of technologies, understanding heterogeneity in the relationship between patents and research investments across industries is particularly important looking ahead.
American Economic Review