Economics of the patent system

Abstract

Since knowledge has “public good” characteristics, it is shown that the price system cannot determine the efficient allocation and production of knowledge. As a result, alternative allocative mechanisms are proposed as solutions to the public goods problem. But knowledge differs from classical public goods. Because of these differences, various arrangements have been proposed to deal with allocational problems in the production of knowledge. One of these arrangements refers to the patent system, where the society is granting private producers of new knowledge exclusive rights to the use of their creations, thereby forming conditions for the existence of markets in intellectual property and enabling the originators to collect fees for the use of their work by others. The thesis is about the economics of patent protection. After considering the economics of knowledge and discussing the history of the patent system and characteristics of the U.S. Patent Law, the thesis studies the international trade dimensions of intellectual property. Thereafter, partial and general equilibrium models of the patent system are developed for the study of the characteristics of the patent system and for the analysis of the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement. It is shown that welfare cost of the patent system increases with increases in patent duration, degree of love of variety of the society, and the country size. The North - South patent protection model developed in the thesis, deals with possible effects of patent duration on technological differences between these poles. The findings imply that, technological lag between developed and developing countries is non-decreasing in global patent duration.