Political Economy of Patent Policy and Economic Growth

Abstract

This study examines how firms’ campaign contributions to political parties affect patent policy, innovation, and welfare in an economy. We find that when the governing party is corrupt and places great importance on contributions, it strengthens patent protection and increases innovation. In addition, we find that a higher fraction of campaign contributions in firm profits encourages innovation and the governing party chooses stronger patent protection when it is corrupt. This implies that if campaign contributions are important for policy-making, the governing party has an incentive to choose a strong patent protection level.

Appendix

1.1 A.1 Derivation of Household Utility in Eq. (3.28)

In this appendix, we derive the household’s utility as a function of the patent policy. Combining D(t) = βE(ω)/P_D(t), Eq. (3.6), p_c = 1 and p_m = 1/α yields

$$ D(t)=\alpha \beta E\left(\omega \right)n{(t)}^{\frac{1-\alpha }{\alpha }}{\left[\omega +\left(1-\omega \right){\alpha}^{-\frac{\alpha }{1-\alpha }}\right]}^{\frac{1-\alpha }{\alpha }}. $$

(3.45)

Substituting Eq. (3.45) and Y(t) = (1 − β)E(ω) into β log D(t) + (1 − β) log Y(t) yields

$$ {\beta}^{\beta }{\left(1-\beta \right)}^{\beta }+\beta \left(\frac{1-\alpha }{\alpha}\right)\log \left\{n(t)\left[\omega +\left(1-\omega \right){\alpha}^{-\frac{\alpha }{1-\alpha }}\right]\right\}+\log E(t). $$

(3.46)

Integrating Eq. (3.46) from 0 to infinity with n(t) = n(0)e^g(ω)t, we derive Eq. (3.28).