Optimal Patent Length and Patent Width for an Economy with Creative Destruction and Non-Diversifiable Risk

This study examines optimal public policy in a product cycle model where R&D firms innovate and imitate and households face non-diversifiable risk. The government controls product cycles by two policy instruments: patent length, i.e. the expected time an innovation is imitated, and patent width, i.e. the innovator's profit after a successful imitation relative to that before. The main results are the following. An increase in patent length or patent width slows down economic growth. The more patient or the less risk averse the households, the longer and narrower the optimal patents.