Patentability and knowledge spillovers of basic R&D

This study develops an R&D-based growth model with basic and applied research to analyze the growth and welfare effects of two patent instruments: (a) the patentability of basic R&D, and (b) the division of profit between basic and applied researchers. We find that for the purpose of stimulating basic R&D and economic growth simultaneously, increasing the share of profit assigned to basic researchers is more effective than raising the patentability of basic R&D, which has either a negative effect or an inverted-U effect on technological progress. However, a benevolent patent authority requires both patent instruments to achieve the socially optimal allocation in the decentralized economy.