Intellectual property rights in a quality-ladder model with persistent leadership

This article analyzes the effects of intellectual property rights in a qualityladder model in which incumbent firms preemptively innovate in order to keep their position of leadership. Unlike in models with leapfrogging, granting nonexpiring forward protection reduces the rate of innovation and imposing a nonobviousness requirement reduces R&D spending. It is shown that full protection against imitation, granted independently of the size of the lead, maximizes the average innovation rate.