Management

The Economics of Patents: An Overview

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In this paper, we review the economic effects of intellectual property rights and
specifically address the economics of the patent system. The production and dissemination
of new knowledge is fraught with market failures because knowledge is a public
good. Patents provide a second-best solution to the resulting appropriability problem. We
review the main benefits and costs of the patent system, focusing on the role that patents
play in providing incentives for innovation, in promoting the dissemination of knowledge,
and in helping technology transfer and commercialization of new technology. From
a more normative perspective, we address the questions of what the features of an optimal
patent system are and whether the patent system is socially desirable. We examine
the problem of the optimal length and scope of patent protection, both for the case of a
single innovation and for the richer case of cumulative innovations. Finally, we review
the issues related to how the patent system influences the market structure and research
and development investments.
Key words: innovation, intellectual property rights, monopoly, patents, research and
development.

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English

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NONE

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