ECONOMICS OF PATENTING A RESEARCH TOOL

When a new technology consists of sequences of innovations that culminate in a finalconsumer product, the balance between successive innovators is one of the main concernsin the design of the patent system. While intertemporal aspects of incentive are critical inthis environment of sequential innovations, time plays a minor role in existing literature ondynamic models. By focusing on the incentives of follow-on innovators whocommercialize an initial invention, this study examines the dynamic implications of thepatent instrument (e.g., patent life) via a positive analysis. It shows that a long patent lifemay encourage innovation incentives and increase social welfare, contrary to existingarguments that argue that long patent life always discourages the incentive for subsequentinnovations. This study also examines the implications of finite patent system in differentmarket structures.