SMU SOE Seminar Series (November 29, 2024): International Policy Coordination to Promote Innovation and Production Capacity

TOPIC:

ABSTRACT

This paper develops a model to explore the dynamic interplay between patent policy, capacity building, and innovation. It assumes that rents from licensed manufacturing are shared between producers and innovators through a bargaining process influenced by patent laws. When patent laws are relaxed, manufacturers gain bargaining power due to the ease of imitation, encouraging them to invest in capacity building as the threat of imitation lowers entry barriers and increases profitability. Enhanced production capacity, in turn, motivates innovators to invest in research and development by increasing market adoption potential. However, weaker patent protection also reduces the bargaining power of innovators, potentially discouraging R&D investment. This trade-off between expanded capacity, enabled by relaxed patent laws, and the diminished share of rents for innovators ultimately shapes the incentives for ongoing innovation.

Click here to view the CV.
Click here to view the paper.